Euro Rises to Fresh High After Catalan Speech; Dollar Drops

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  • Catalan president takes conciliatory stance, seeks talks
  • Dollar down against all G-10 peers, led by Swedish krona

The euro rose to its highest in more than a week after Catalonia’s president struck a conciliatory tone in a speech about the region’s independence referendum.

The common currency saw its third day of gains against the dollar after Catalan President Carles Puigdemont proposed suspending the result of the independence referendum for “weeks” and called for “a period of dialogue.” Meanwhile, the greenback declined against all of its G-10 peers on the day as strategists mulled whether a recent dollar rally is over.

  • EUR/USD was trading at ~1.1807 after reaching a session high of 1.1825. After Puigdemont’s speech, markets are waiting for a response from Madrid, which had been prepared to arrest the Catalan leader if he declared independence. El Pais reports that officials viewed the speech as a declaration of independence 
    • EUR faces technical resistance from its 55-DMA at 1.1838; a break above that level may shift the medium-term outlook on the pair; the common currency remains a sell on rallies, at least by short-term players, traders in Europe said
  • The Bloomberg Dollar Spot Index declined as much as 0.5 percent on the day, falling for a third consecutive session. Politico reported earlier that President Trump was said to be told that Senator Rand Paul (R-K.Y.) might not support his tax bill, possibly weighing on already-stretched expectations for tax reform in the near-term. Strategists said the dollar decline was likely reflective of a broader correction
    • “The dollar has come off partly on technical reaction to the price action Friday and because U.S. interest rates have fallen as people realize the Fed hike is already priced in,” Marc Chandler, Brown Brothers Harriman global head of currency strategy, said in a phone interview
    • The Swedish krona, Danish krone and euro led gains among G-10 peers against the dollar
  • USD/JPY was trading around 112.36, paring losses seen earlier in the session. USD/JPY earlier breached lows from late September that had defined the base of a recent trading range; pair risks a test of its 200-DMA at 111.88 if losses extend. USD/JPY saw a session low just a pip below 112.00, where a large option expiry rolls off later this week
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