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EUR/USD Likely to Continue Lower on Catalan Crisis, Strong Dollar

EUR/USD Likely to Continue Lower on Catalan Crisis, Strong Dollar

Nick Cawley, Senior Strategist

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Talking Points

- Spain’s Rajoy move to sack the Catalan government over the weekend will spark more civil unrest.

- US bond yields rise to multi-year highs supporting the greenback.

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The latest moves this weekend which saw Spanish Prime Minister announce plans to impose direct rule on Catalonia prompted further weakness in the single currency as the constitutional crisis in one of Europe’s largest countries continues to rumble on. The move, described by Catalan President Carles Puigdemont as the “worst attack against the institutions and the people of Catalonia since the military dictatorship of Francisco Franco” came in response to the Catalan referendum on October 1 which saw the region vote for independence. The Catalan parliament is expected to meet shortly to discuss the latest moves by Madrid to impose powers.

EUR/USD is also coming under pressure from a strengthening US dollar as US bond yields continue to hit multi-year highs. The interest-rate sensitive 2-yr touched a fresh nine-year high of 1.59%, while the 5-year hit a six-and-a-half year high of 2.03%. In response to the weaker EUR and rising US yields, the US dollar index hit a near two-week high of 93.70 and looks set to press higher.

EUR/USD looks likely to test the recent 1.17300 low ahead of an attempt at the October 6 low of 1.16700. Traders will also be looking ahead to the latest ECB monetary policy meeting on Thursday, October 26, where the central bank is likely to announce plans to reduce its EUR60 billion a month bond buying program.

Chart: EURUSD Four Hour Timeframe (October 4 - October 23, 2017)

Chart by IG

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--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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