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• European equities showed modest gains in an uneventful session. Madrid (-1.5%) bucked the trend due to the Catalonian issue. US equities opened marginally higher too.
• Spanish bonds, stocks and the euro came under pressure on Monday after more than 2m Catalans voted for the region's independence, deepening a political crisis in one of the eurozone's best-performing economies. The Spanish government drew condemnation from some parts of Europe after police hit people with truncheons and fired rubber bullets in an attempt to stop the referendum
• The unemployment rate in the eurozone has stuck at 9.1% in August, slightly disappointing the Reuters consensus forecast for a further small decline but still at the lowest point since February 2009. The rate is down from 9.9% per cent a year beforehand.
• Conditions in the UK's manufacturing sector worsened in September, according to a closely-watched business survey, which pointed to a further growth slowdown, in contrast to hopes of a boost from the weak pound. The PMI index slipped from 56.7 to 55.9, worse than consensus economist forecasts of 56.4.
• Eurozone manufacturing firms reported their strongest month of job creation on record in September, according to a closely-watched series of PMI surveys which will provide further weight to central bank hawks hoping that the region's recent economic recovery is stable enough to begin normalising monetary policy
• At least 50 people have been killed and 200 injured after a gunman opened fire on the crowd at a country music festival in Las Vegas on Sunday evening local time, mowing down concert goers and triggering panic around the city's famous gambling strip
• US ISM business sentiment improved sharply in September, suggesting activity in the sector is accelerating. The headline index rose to 60.8 from 58.8 previously, exceeding the consensus estimate of 58.1. All key sub-indices like new orders, employment and prices went up and are above the 60 threshold.

Rates

Core bonds modestly higher; Spanish bonds sell-off

The Catalonian election result and the reaction of the Madrid government injected some risk off sentiment regarding Spanish assets at the start of European trading, but impacted the Bund or euro area equities only marginally. The Bund opened weak and it took some time to find its exposure, as euro area equities opened constructive due to a carry-over of positive Asian equity sentiment. However, when equities turned south, the Bund took the opposite direction and more than erased opening losses. However, soon both moved sideways, but still into positive territory, even as gains were modest. EMU PMI was revised marginally lower (58.1 from 58.2), but was of course ignored and so was the news of the repulsive mass shooting in Las Vegas. Going into the ISM release, core bonds gain a tad more ground, but gains remain modest.

At the time of writing, the German yields are 1.2 (2-yr) to 2.3 bp (30-yr) lower, while US yields fall between 0.5 and 1.3 bp. throughout the curve. In the intra-EMU bond market, the Catalonian election result and the stand-off with the central government weighs on Spanish and to a lesser extent other peripheral bonds. Spanish 10-yr yield spreads widened 10 bps, while Portugal and Italy widen 4-to-5 bps.

Currencies

EUR/USD loses a few ticks after Catalan referendum

The dollar initially traded with a cautiously positive bias today as global investors were inclined to extend the last week's reflation trade. At the same time, the euro faced some headwinds from the uncertainty on Catalonia. However, the USD rebound lost momentum in the afternoon trade. USD/JPY trades in the 112.60 area. EUR/USD hovers in the 1.1760 area, awaiting the US manufacturing ISM.

Overnight, the Japan Tankan confidence was constructive with especially manufacturing and smaller non-manufacturing firms more optimistic. The headline index improved from 17 to 22. There was no reaction of the yen. USD/JPY profited from overall USD strength as markets pondered the potential impact of a US tax cut. EUR/USD declined to the 1.1775 area. USD strength prevailed, but there was also a minor fall-out from the tensions in Catalonia.

The negative impact from the Catalan vote was mostly limited to Spanish assets. Spreads on Spanish government bonds widened up to 10 bps (10-y) and Spanish equities declined (about 1.8%) while other European markets gained. Bunds outperformed US Treasuries, widening the interest rate differential in favour of the dollar. EUR/USD started a new intraday downleg early in Europe. The move was probably more or less evenly due to euro weakness and USD strength. A cautious continuation of the reflation trade supported the likes of USD/JPY and other USD cross rates. The EMU manufacturing PMI was revised marginally lower from 58.2 to 58.1, but at this lofty level it was no negative factor for the euro.

Sentiment remained cautiously risk-on as US traders joined the fray, but didn't help the dollar. On the contrary , the US currency returned part of this morning's gain. EUR/USD trades in the 1.1755 area. USD/JPY is changings hands in the 112.60 area. Today's price action is modestly constructive from a dollar point of view. However, dollar bulls might still be slightly disappointed that EUR/USD didn't decline a bit more. After the closure of this report, the US manufacturing ISM will still be published. A modest decline from a 58.8 to 58.1 is expected. A figure in line with consensus might be slightly USD supportive (58.1 is still a very high level).

Sterling extends decline

The pound ceded further ground today. Sterling declined against an overall stronger dollar, but also against the single currency, which was under slight pressure from the independence vote in Catalonia. EUR/GBP initially hovered in the low 0.88 area, but came gradually under pressure as the UK manufacturing PMI was slightly softer than expected at 55.9 from 56.7 (56.2 was expected). This remains a healthy level. Still it kick-started a gradual decline of sterling. The political bickering on the Brexit strategy between Foreign Secretary Boris Johnson and PM May also weighed on the UK currency. UK Chancellor of the Exchequer Hammond listed a series of Challenges for the UK economy post Brexit at the Conservative Party conference in Manchester. EUR/GBP trades currently in the 0.8860 area, drifting further away from the 0.8742/0.8774 support area. The loss of cable is quite substantial. The pair trades in the 1.3275 area compared to levels near 1.34 late last week and this morning in Asia.

The currency pair is trading in the green and seems motivated to climb higher in the upcoming period. Price is challenging a very strong dynamic resistance right now, a valid breakout will announce a further increase. Remains to see what will happen in the upcoming hours because United States data could shake the markets a little bit.

Technically, is somehow expected to climb much higher as the Yen could take a hit from the Nikkei's further increase, while the USD should increase as the USDX rallies again. The index is trading right above the 93.60 level and approaches the 93.68 former high and a dynamic resistance.

The dollar index should climb much higher in the upcoming period as the behavior changed and because the Federal Reserve is still expected to hike the interest rate in December.

The price increased and resumed the Friday's minor bullish candle. Is trading in the green and tries to take out the dynamic resistance from the median line (ml) of the minor ascending pitchfork. USD/JPY moves in range on the Daily chart.

Price increased after the failure to retest the median line (ml) of the minor descending pitchfork. It was attracted by the confluence area formed between the median line (ml) of the ascending pitchfork with the upper median line of the minor descending pitchfork.

A valid breakout through the mentioned confluence area will accelerate the bullish momentum, while a false breakout followed by a rejection will send the rate towards fresh new lows.

The Brent plunges and extends the last week's sell-off. Technically, we could have a major drop in the upcoming period if the rate will come higher to retest the median line (ML) of the major ascending pitchfork. A false breakout above the ML announced a major drop in the upcoming period. Support can be found at the downside line of the ascending channel.

Gold drops further on the short term and should approach and reach the sliding line (SL) of the ascending pitchfork, where he may find support again. Price ignored the confluence area formed between the 38.2% retracement level with the warning line (WL1) and now could be attracted by the confluence area formed between the 61.8% retracement level with the sliding line (SL).

The British pound has moved below key technical support against the U.S dollar, after the United Kingdom's manufacturing Purchasing Managers' Index came in weaker than expected, at 55.9, which was lower than the previous month's figure of 56.7.

Trading sentiment surrounding the GBPUSD pair is expected to remain weak while price-action trades below the key 1.3343 level, which is the pairs key 100-week moving average.

The GBPUSD pair is also declining due to a stronger U.S dollar index today, with greenback continuing to gain bullish momentum above the 93.00 level heading into the U.S session.

Today's decline has so far found technical support from the 1.3290 level, although further losses cannot be ruled out towards 1.3240.

Key intraday GBPUSD resistance is currently located at the pairs monthly pivot, at 1.3321, with further intraday resistance found at 1.3343, 1.3361 and 1.3400.

Below the 1.3290 level, key GBPUSD intraday technical support is found at 1.3265, 1.3240, 1.3215 and 1.3190.

The euro continues to move lower against the U.S dollar, hitting 1.1730 during the European trading session, as political uncertainty over the Catalan election weighs on the single currency.

Sentiment surrounding the EURUSD pair is likely to remain weak today, with further technical selling likely whilst the pair remains below key intraday support, located at 1.1770.

Crucially, the EURUSD pair remains above the former weekly price low and the key 1.1710 level, which donates the 2015 yearly price high and the pairs 200-week moving average.

Going forward, today's daily price close should give further indication if the euro will decline further towards 1.1710, or attempt a recovery above the 1.1770 mark.

Key intraday EURUSD technical support is found at 1.1730, 1.1717 and 1.1710. Below 1.1710, further losses towards 1.1660 and 1.1610 remain likely.

To the upside, intraday technical resistance is found at 1.1770, 1.1800 and the pairs weekly pivot, at 1.1823.

Sterling got off to a rough start during Monday's trading session after weaker than expected data from Britain's manufacturing sector, suggested that the economy could be losing momentum.

Growth in UK's manufacturing sector eased in September, as the Purchasing Managers' Index fell to 55.9 from August's 56.7. This report has compounded the disappointment felt from last week's soft UK GDP reading for Q2, which was the weakest since 2013. As we enter the final trading quarter of 2017, Sterling could find itself in trouble and exposed to downside risks, as the combination of soft economic data and ongoing Brexit uncertainty, weighs heavily on the currency.

From a technical standpoint, the GBPUSD is coming under intense selling pressure on the daily charts. A decisive breakdown and daily close below 1.3300 may open a clean path towards 1.3150.

Euro pressured by Catalonia worries

The mighty Euro was not so mighty against the Dollar on Monday, amid uncertainty about the political situation in Spain.

Catalonia held an independence referendum on Sunday, which showed 90% of those who voted were in favour of independence, with a turnout rate of 42.3%. With the developments in Spain rekindling concerns of political uncertainty in Europe, the Euro is likely to find itself under further selling pressure. A vulnerable US Dollar has also played a leading role in the EURUSD's decline, with prices trading around 1.1740 as of writing. With the Greenback slowly reclaiming its throne on the back of rising US rate hike expectations, the current weekly uptrend of the EURUSD is under threat.

From a technical standpoint, the EURUSD bulls look tired and may lose control on the weekly charts if prices trade below 1.1680. A breakdown below this level, may encourage a further decline towards 1.1600 and 1.1500, respectively.

Commodity spotlight – Gold

Gold lost some of its glimmer during Monday's trading session, as investors entered the final trading quarter of 2017 with a risk-on attitude.

The downside was complemented by a strengthening US Dollar and expectations of higher US interest rates, which encouraged bears to install fresh rounds of selling. With the yellow metal achieving a monthly close below $1300, Q4 could be the quarter in which bears make a serious move to drag prices to back towards $1240, and potentially even lower.

From a technical standpoint, Gold is bearish on the weekly timeframe. The breakdown below $1280 should encourage a decline towards $1267 this week.

GBPUSD: The pair weakened strongly on Monday opening the door for more price extension. Support lies at the 1.3250 level where a break will turn attention to the 1.3200 level. Further down, support lies at the 1.3150 level. Below here will set the stage for more weakness towards the 1.3100 level. Its daily RSI is bearish and pointing lower suggesting further weakness. Conversely, resistance stands at the 1.3350 levels with a turn above here allowing more strength to build up towards the 1.3400 level. Further out, resistance resides at the 1.3450 level followed by the 1.3500 level. On the whole, GBPUSD continues to face further downside pressure

The CAC index has started the trading week quietly. In the Monday session, the index is at 5,338.75, up 0.12% on the day. On the release front, manufacturing numbers in France and the eurozone improved in September. French Final Manufacturing PMI rose to 56.1, its highest level since April 2011. In the Eurozone, Final Manufacturing PMI improved to 58.1, just shy of the estimate of 58.2 points.

All eyes were on Spain over the weekend, as the region of Catalonia held a referendum on Sunday. The vote was marked by violence as police tried to shut down polling centers and confiscated ballots. The national government banned the referendum, and police used tear gas and rubber bullets against defiant voters, causing over 800 casualties. Catalonian officials claimed that 90 percent of voters had voted for independence. The stage has now been set for a full-blown constitutional crisis with Madrid. The Catalan regional government is holding an emergency meeting on Monday to discuss what steps it will take regarding independence, and the markets will be monitoring the situation, which remains fluid. Although, the drama in Spain is not expected to have a serious impact on the eurozone nervous investors reacted to the news on Monday by selling euros in favor of the dollar and Swiss franc.

There was good news from the manufacturing front on Monday, as French Final Manufacturing PMI accelerated for a fourth straight month, and continues to point to expansion. The French economy has rebounded in 2017, as growth is up and unemployment has fallen. Last week, the Bank of France revised upwards its growth forecast to 1.7 percent, up from 1.6 percent in July and 1.4 percent in June. Villeroy de Galhaum, head of the Bank of France, said that although the economy was improving, a growth rate of 1.7% was still short of the eurozone growth rate of 2.0 percent. The Bank's forecast is in line with that of the OECD, which has revised its growth forecast for France from 1.3 percent to 1.7 percent.

Daily Pivots: (S1) 1.1779; (P) 1.1806 (R1) 1.1839; More...

EUR/USD is still staying above 1.1716 temporary low and intraday bias stays neutral at this point. Outlook is unchanged that decline from 1.2091 is correcting whole rise from 1.0569. Deeper fall is expected as long as 1.22029 resistance holds. Below 1.1716 will target 38.2% retracement of 1.0569 to 1.2091 at 1.1510, where we're expecting support to bring rebound.

In the bigger picture, rise from medium term bottom at 1.0339 is not finished yet. It's expected to continue after pull back from 1.2091 completes. And, next target will be 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516. However, it should be noted that there is no confirmation of trend reversal yet. That is, such rebound from 1.0399 could be a correction. And the long term fall from 1.6039 (2008 high) could resume. Hence, we'd be cautious on strong resistance from 1.2516 to limit upside.