Catalonia Elections Could Shake Euro

On Sunday, November 28th, elections are held in Catalonia, one of the richer regions in Spain. The local Socialist party is expected to lose – a “punishment” for the actions of its “mother party” that controls Spain. This can add more weight on the Euro.

Here’s a very brief explanation of local politics:

A recent setback in the autonomy granted by the central government is angering some of the locals, as well as the significant gap of what the government collects through taxes and what it gives back to Catalonia. Calls for independence have been strengthening.

The strongest voice for Catalan independence is heard from Joan Laporta, the former president of the popular football side FC Barcelona. In one of his latest rallies he was accompanied by Maria Lapiedra, which brought him more popularity.  He now heads the Catalan Solidarity for Independence which isn’t the only party promoting independence for Catalonia.

Many Catalans want independence, but the main issue on the agenda now is that the local government will at least get to manage their financial affairs.

The local Socialist party is expected to lose to the CiU party, which promotes autonomous tax collection. As th nationalist calls strengthened, Artur Mas, the leader of the CiU raised his tone as well and hinted he would support independence.

The Popular Party, which is the main opposition party on the national level, is weaker in Catalonia, but if the party gains seats in the local parliament, it will be a sign that the tables are turning on Spain’s prime minister Jose Luis Rodriguez Zapatero.

EUR/USD already had a terrible week, suffering from the complications in the Irish crisis, and seeing confidence fall in other countries as well. Contagion is well reflected in Spanish bonds, that already reached a yield of 5.25% (10 year notes).

Success of opposition PP party or the pro-independence parties in the Catalan election, may shake investor confidence and provide more weakness for EUR/USD.

At 1.3239, Euro/Dollar is capped by 1.3267 on top and has minor support for 1.32, followed by 1.3114. Stay tuned for the weekly Euro analysis for all technical levels, analysis and an outlook for all the indicators due this week.