Catalonia & Corker

Separatist leaders in Catalonia did not declare independence on Tuesday. Instead, they called for dialogue. The euro pushed across the board before stabilizing in Wednesday trading ahead of the FOMC minutes. The post-Puigdemont euro moves helped the Premium EURUSD trade into a 100-pip gain. The trade remains open.

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The coalition of separatist parties in Catalan parliament is struggling to find a way forward amidst threats from Madrid. Leader Puigdemont attempted inching closer towards independence without a formal declaration on Tuesday. Instead, asserted his mandate to declare independence, but asked for weeks of dialogue and hinted at international mediation. The hardcore ranks of separatists called it a betrayal while the government hinted he could be prosecuted for declaring independence anyway.

The euro climbed about 15 pips after failure to declare independence. For the past few weeks, the currency has shown diminishing sensitivity to the Catalonya story; in part because Catalonia will continue to use the euro. The downsides at the moment relate to Spanish growth and that's a small part of eurozone GDP. Nor is it likely to derail ECB plans to taper. EUR/USD rose above 1.1800 on the day, a 70 pip rise.

USD softness is re-emerging due to two main reasons: Renewed uncertainty about taxes after Trump picked a fight with high-ranking Republican Senator Bob Corker. Trump can only afford to lose two votes in the Senate and his spat with Corker has taken a personal tone.

The other reason is China, which seems to be undertaking a concerted effort to boost the yuan ahead of the party congress and Trump's visit in a month. USD/JPY has fallen 1.3% in two days this week.