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Things are getting worse in Spain. The Catalan government made its own threats and the Spanish government is set to suspend the autonomy. Nevertheless, after the small drop, EUR/USD is marching higher once again. What’s going on?

Here is their view, courtesy of eFXnews:

ING FX Strategy Research notes  there is a pattern in the ongoing EUR resilience to the Spanish woes.

This is in line with the trend of past years, whereby EUR has been becoming more immune to EZ political risk  (ie, limited EUR/USD downside during the summer 2015 Greek crisis, Italian banking woes in 4Q16 and the run-up to the first round of the French Presidential elections this year).

Indeed, based on our financial fair value model, EUR/USD does not exert any “negative” EZ political risk premium (in fact, we observe a persistent, “positive” ECB QE related risk premium priced in EUR), while EUR/USD risk reversals remain stable too,” ING notes.

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