22.12.201715:03 Forex Analysis & Reviews: Global macro overview for 22/12/2017

Catalonia chose the government

At yesterday's elections to the regional parliament in Catalonia, the separatists won 70 seats in the 135-seat parliament (the majority are 68 seats): the total for Catalonia (Junts per Catalunya) has 34 seats, the Republican Left of Catalonia (ERC) has 32 seats and the ultra-left Union of Unity People's Republic (CUP). The turnout was record-breaking, as it amounted to 83 percent.

The result of the elections is clearly showing that pro-independence parties managed to get a majority of the seats in the Catalan parliament, which might increase the political uncertainty of the region. The ERC party has declared in the run-up to the elections that it is no longer in favor of a unilateral declaration of independence but seeks a negotiated solution, risks of a new standoff with Madrid have diminished. Moreover, is still not clear who will be the head of the new government and this might not be the easy process. The crisis already appears to have had some impact on the economy. Retail sales in October, for example, dropped sharply in Catalonia and more than 3,000 companies moved their corporate address outside the region.

Let's now take a look at the EUR/USD technical picture at the H4 time frame. The Catalan elections did not have much impact on the pair yet as the market is in pre-Christmas low volatility mode, so the election results might get digested through the holiday season and then the market participants will experience more extended market moves. The price got stuck between the levels of 1.1901 - 1.1816 and the momentum is hovering around its fifty level, supporting the neutral outlook in the near-term.