Yesterday, the British Parliament supported the controversial draft law "On the UK Internal Market", which involves the introduction of unilateral changes to the agreement on London's exit from the European Union. This document was harshly criticized not only from Brussels, but also from the United States. Democratic Party officials questioned the advisability of further negotiations with the British on a free trade deal. According to Democrats, Johnson's government is "too frivolous" about the principles of international law, so Americans should draw appropriate conclusions.
Moreover, the EU leaders are voicing harsher rhetoric. Thus, the most prominent "hawks" warn that if London violates the terms of the concluded agreement, the political dispute will end with a lawsuit in the Luxembourg court. According to a court decision, Britain can receive significant fines, and a trade war may begin between the UK and the European Union, within which the EU will impose sanctions on British exports.
Johnson's initiative was also criticized in the UK. First of all, we are talking about the Laborites, who are the main opponents of the Conservatives. However, their position was predictable, given the opposition. But criticism from fellow party members Johnson were surprising. In addition, many predecessors of the current head of government criticized the bill. For example, former British Prime Minister, David Cameron, spoke out yesterday against the violation of the agreement on Britain's exit from the EU. He has already become the fifth ex-prime minister to voice such rhetoric. Previously, former British Prime Ministers from the Conservative Party, Theresa May and John Major, as well as Labor Party members Tony Blair and Gordon Brown, also condemned the document.
But, despite this opposition, the British Parliament still gave the go signal to the resonant bill. 340 deputies voted in support, while only 263 voted against it. This means that the discussion of the bill moved to the next stage. Now, legislators will begin discussing its content. The parliamentary battles will take place for almost two weeks, after which it will become clear whether the document has a further perspective or whether it will fail in the final vote.
Nevertheless, the pound reacted calmly to the recent events and even showed an upward trend against the dollar during today's Asian session, although the growth was limited by the level of 1.2870. This is due to the fact that the "first", preliminary positive vote was already included in the prices. After Johnson introduced the bill to the British Parliament, the GBP/USD pair fell by more than 400 points, anticipating further developments. It is worth recalling here that at the end of last year, the Conservative Party, led by Boris Johnson, managed to get a convincing victory, which allowed the Prime Minister to form his own majority in parliament with a significant "margin": 365 votes against the required 325.
Johnson's predecessor, Theresa May, had to negotiate not only with her party members, but also with temporary coalition allies (unionists). The current head of government is in a better position. Yesterday's vote showed that not all Conservative MPs support Johnson's initiative. However, the bill passed the millstone of the first vote: 340 votes in favor (while 25 conservative MPs either voted against or abstained).
The current "conservative composition" of the House of Commons differs from the previous one, and in the direction of a more radical attitude towards the Brexit issue. Therefore, the current optimism of the British currency looks early. Let me remind you that the essence of the resonant bill is that Northern Ireland will be guaranteed "unlimited access" to the British domestic market after the end of the transition period at the end of the year. The same goes for unlimited exchange of goods. The bill provides for a derogation from the Northern Ireland minutes, which, according to Johnson, currently allows the European Union to impose any tariffs on goods that move from Northern Ireland to Britain.
Despite sharp criticism from prominent conservatives (including former prime ministers), many "Tories" in the House of Commons are guided by Boris Johnson, following his policies. Therefore, the intrigue around this bill is still preserved.
If we ignore the situation with this bill, we can come to the conclusion that the prospects for the pound still look quite vague. If the controversial law is passed, Brussels will most likely withdraw from the negotiation process to discuss a trade deal. And if the House of Commons rejects Johnson's initiative, he will refuse to submit a proposal for an extension of the transition period and will demand a trade agreement be concluded before the New Year (which is a priori impossible). In any case, the situation will cause tension until the last moment, putting significant pressure on the pound.
Technically, everything suggests that the current growth of the GBP/USD pair is advisable to use to open short positions. The main goal of the downward movement is the level of 1.2720 – this is the lower border of the Kumo cloud, which coincides with the lower line of the Bollinger Bands indicator on the daily chart.
