FX.co ★ UK and EU are close to resolving the dispute over Northern Ireland's post-Brexit trading rules

UK and the European Union are rumored to be close to a major breakthrough in the months-long dispute over Northern Ireland's post-Brexit trading rules. Initially, the problem threatens a full-scale trade war, but the current crisis in which both regions experience record inflation seem to have made authorities do everything to find common ground.

According to reports, the EU has begun testing the current UK database that tracks goods moving from the UK mainland to Northern Ireland. If they are satisfied with the system's performance, an agreement on customs checks in the Irish Sea may be signed.

This recent upswing regarding negotiations allows Prime Minister Rishi Sunak's government to hope the deal will defuse tensions in the region and help the government resolve a number of problems. However, another key point to be addressed is the UK demanding that the European Court of Justice be stripped of its role in settling Brexit disputes in the region, which is not acceptable to the EU. The representative of the European Commission declined to comment on the progress of the talks, as did the British Foreign Office.

Nevertheless, resolving the issue is beneficial as it would help correct supply chain disruptions and ease price pressures, especially if the Bank of England continues to increase rates at the current pace, which could push GDP down by up to 3.0% next year.

In terms of GBP/USD, buyers are now focused on defending the support level of 1.1510 and breaking through the resistance level of 1.1590. This limits the upside potential as only a breakdown of 1.1590 will lead to a rise to 1.1690, 1.1730 and 1.1780. If pressure returns and sellers take control of 1.1510, the pair will drop to 1.1430 and 1.1360.

In EUR/USD, sellers are not very active yet, so buyers have a chance to push the pair above 1.0090. A breakdown will spur growth to 1.0140, while a drop below 1.0030 will push euro back to 0.9970, 0.9920, 0.9880 and 0.9830.