Euro Down As Catalan Independence Referendum Causes Chaos

Spanish Government Rule Referendum as Illegal

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Euro Drops on Independence Vote

EURUSD traded lower over the European morning on Monday in response to the outcome of the Catalan independence referendum held on Sunday. Initial reports show that just over 2.2 million people voted (out of a registered 5.3 million voters) with nearly 90% voting in favour of secession from Spain.

Scenes of Violence at The Voting Booths

However, the referendum has not only drawn attention due to the historic outcome, but also because of the controversy surrounding the Spanish government’s response. Spanish PM Rajoy ruled that the referendum was illegal and as such, ordered the national police and paramilitary Civil Guard to seize ballot papers and boxes across the region. These actions were met with strong protests by those in favour of Catalonian independence and the day was marred by upsetting scenes of violence.

Speaking shortly after the vote, Catalan leader Carles Puidgemont said that his government in the next few days would send the results of today’s vote to the Catalan parliament, where the sovereignty of our people lies, so that it can act in accordance with the law of the referendum.”

Spanish Government Rule Referendum as Illegal

However, the Spanish government is still refusing to recognise the referendum as legal. PM Rajoy responded by saying that “At this hour I can tell you in the strongest terms what you already know and what we have seen throughout this day. There has not been a referendum on self-determination in Catalonia,”

Spanish Government’s Response Criticised

The situation casts a dark shadow over the Rajoy administration with new stations across the globe condemning the response which is seen as anti-democratic and totally disproportionate. Over 800 people have been injured and treated for injuries due to the violence which was aired around the world. Once of the most upsetting scenes was a group of Catalonian firefighters being beaten with batons by the police as they tried to protect crowds of voters.

So far, it appears that the Spanish government is sticking to its view that the referendum was illegal, but given the high percentage of those who voted in favour of independence it is possible that some negotiations will be held between the Catalan government and the national government with the Catalans likely to use the scenes of violence under a global audience as leverage.

Market Reaction & Technical Perspective

The market reaction has been fairly contained with some mild EUR downside selling. The biggest reaction is in Spanish bonds with yields around 9% higher at the moment further movement is likely over the coming days as the Spanish government is due to consult with the nation’s parties to discuss a response to what has become a political crisis. In the meantime, attention shifts back to the key market focus which is the likelihood of the ECB announcing further tapering at their upcoming October meeting.

For now, EURUSD is challenging key support at a retest of the broken 2015 high around 1.1718. If price can hold above this level, then this will likely keep the focus on another topside run which would likely be seen if the ECB does announce tapering.

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