What was expected to have been a bold declaration of independence turned out to be a weak statement. Catalan’s President Puigdemont held back from a total declaration of independence merely stated that he had the right to do so. Puigdemont stated that he wanted to reduce tensions and provide time for talks with the Spanish government. Puigdemont was able to declare independence then repeal the same statement. The Euro rallied hard as the immediate threat was lifted. However, the confusion statements provided no closure while exposing additional complexity. Perhaps the Catalonian government was expected an olive branch from Madrid got a directly worded rebuttal.
Deputy Prime Minister Santamaria reiterated that the Spanish government views the actions of Catalonia as illegal and would not engage in discussions until efforts towards independence was halted. The lack of full-blown independence has certified normalizations of Spanish asset prices, with sovereign spreads narrowing and IBEX to rally. We still see uncertainty in the near term, expecting EURUSD to slide back toward 1.1700. However, the trend for further EU integration has made another significant step forward by stopping dissident democratic movements. Whether we make it out of this short EURUSD trade or not, remain unknown. But a strong, unified EU, in spite of optics, will clearly influence how we trade Italy in the spring.