The euro was pretty much side-lined on Thursday with no economic data in the Eurozone, and politicians keenly watching elections as the Spanish region of Catalonia went to the polls. The election was called by the Spanish prime minister, Mariano Rajoy, at the end of October when the central government took control of Catalonia and sacked the regional government after it staged an illegal referendum and made a unilateral declaration of independence. EUR/USD traded down steadily but not dramatically during the day from an early high of USD1.1885 to a close around 1.1860.
To say the least, the election results are complicated to interpret so please bear with us. Pro-independence parties secured 48 per cent of votes, against 52 per cent for parties that oppose independence but the majority of seats actually went to the supporters of independence. Citizens, the centre-right unionist party, came top, with 25 per cent of the vote, which translated to 37 seats out of the 135 in the regional parliament. The leading separatist party was Carles Puigdemont’s Together for Catalonia, with 34 seats, the Catalan Republican Left (ERC) took 32 and the far-left, anti-capitalist Popular Unity Candidacy took four. The Catalan Socialist party took 17 seats, while Catalunya en Comú-Podem – the Catalan version of the anti-austerity Podemos party – took eight. Trailing them was the Catalan branch of Spain’s ruling People’s party, which won four seats – seven fewer than in the last election two years ago.
If it’s not immediately clear who won, it is very clear who lost: Spanish Prime Minister Mariano Rajoy. He had banked on the election securing a return to “legality and normality”, but now faces the challenge of having to deal with separatists returning to power in Barcelona. Late last night, a jubilant Carles Puigdemont spoke from exile in Brussels calling the results “a victory for the Catalan Republic”.
How all this plays out in the foreign exchange market remains to be seen. For the moment, the EUR is around the midpoint of its overnight range and opens in North America this morning at USD1.1850 and CAD1.5070.