Spanish PM Mariano Rajoy laid down an ultimatum to Catalan President Carles Puigdemont: clarify if you declared independence. If so, Madrid was ready to suspense the autonomy and impose direct rule.
EUR/USD is slipping to support.
The answer came just before the 8:00 GMT deadline but it isn’t a clear binary response. The letter states that the Catalan government is ready for a dialog that could last two months and also calls for a meeting. Was declaration declared? The letter does not include that.
This opens the door for Rajoy activate Article 155 and suspend the autonomy. Rajoy is working hand in hand with the second party in parliament, the socialist PSOE. However, the smaller Ciudadanos party holds an extreme nationalistic line, demanding the suspension of the autonomy from the outset. Ciudadanos is now gaining ground in the polls and may influence Rajoy to take a harder stance.
The longer the crisis lasts, the worse it gets for the Catalan and Spanish economies. Uncertainty is holding back investment and the government is set to revise growth projections to the downside. Spain is the euro-zone’s fourth-largest economy and has exceeded the average growth of the 19-country bloc.
EUR/USD responded negatively and hit support at 1.1780. The pair had already opened on lower ground and the news sent it to support. Further support awaits at 1.1720. Resistance is at 1.1840.
More: What’s next for EUR/USD and GBP/USD?
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