The euro has posted slight gains in the Monday session. Currently, EUR/USD is trading at 1.1637, up 0.24% on the day. On the release front, German Retail Sales gained 0.5% in September, matching the forecast. This was a sharp improvement from the reading of -0.4% a month earlier. Later in the day, Germany releases Preliminary CPI, with an estimate of 0.1%. In the US, the key event is Personal Spending, which is expected to gain 0.8%. On Tuesday, the eurozone releases CPI Flash Estimate, and Preliminary Flash GDP. The US will publish CB Consumer Confidence.
In Spain, the Catalonia saga continues. On Friday, the central government made good on its threat and imposed direct rule on Catalonia. Just prior this move, the Catalonian government pre-empted Madrid and declared independence. There have been huge demonstrations in Barcelona, both in favor and against secession from Spain. Both governments have declared that moves by the other are null and void, so what happens now? The answer may lie with Catalonia’s 200,000 civil servants, who must decide whether to follow orders from Madrid, or join a civil disobedience campaign which is being organized by the Catalan government. So far, the Spanish government has taken a hard line against the independence movement, deposing Catalan President Carles Puigdemont and threatening to file rebellion charges against him. Prime Minister Mariano Rajoy has called elections in Catalonia for December 21, but with developments folding on a daily basis, that date appears eons away.
EUR/USD recorded it worst week since March, declining 1.3 percent. As expected, the ECB finally pressed the trigger and chopped QE from EUR 60 billion to 30 billion/mth. The ECB extended the program, which was due to terminate in December, to September 2018. However, investors were disappointed with ECB President Mario Draghi’s dovish stance, with Draghi stating that the ECB’s bond-buying program (QE) would remain open-ended. There were expectations that the ECB would announce a date when the program would end. ECB President Mario Draghi has given himself plenty of wiggle room, as he can simply extend QE beyond next September. As for monetary policy, the ECB maintained interest rates at a flat 0.00%, and Draghi provided no hints about the timing of future rate hikes. The ECB appears in no rush to tinker with rate policy, and we’re unlikely to see any rate increases until QE is completed.
