Catalan Parliament Declares Independence, FX Volatility Over the Weekend a Risk

Catalan tensions rise, sending the euro lower and FX volatility higher.

It has finally happened – Spanish province Catalonia has officially declared independence from Spain. As the markets are digesting the news, the euro has hit a fresh session low across the board. The central government in Madrid is mulling how it will respond to the announcement.

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In contrast to the President of Catalonia, Carles Puigdemont, the parliament of the region has chosen to taunt the federal government into some form of action.

The response of Spanish Prime Minister Mariano Rajoy didn’t take long as he condemned the Catalan parliament’s action and declared it a ‘criminal act’.

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Public unrest is in the air and in modern high-frequency markets, such events pose big risks. The flash crash of May 2010 was tied to street protests in Greece. An investigation later proved that the market was materially affected by spoofing in the S&P futures market.

Brokers May Hike Leverage into Weekend

The risk for market gaps may prompt some brokers to hike margin requirements on EUR pairs. Many firms have chosen to take action around the referendum vote in Spain.

The risk of protests for (and against) independence may exacerbate any moves in the aftermath of the most volatile day for the euro since the start of the year. Yesterday the single currency registered its biggest decline this year after ECB’s President Mario Draghi signaled a continuation of the central bank’s ultra-easy monetary policy until September of next year.

Any potential changes to margin requirements will be communicated to clients by brokers in the coming hours before market close.

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