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Catalonia will stay in focus

Catalonia will remain at centre stage this week as huge rallies in the region opposing independence took place over the weekend. The demonstrations showed us that there are two sides to the Catalan situation. Mariano Rajoy, the Spanish prime minister, has not ruled out stripping the region of its autonomous powers, which would no doubt infuriate the Catalan separatists.  

The Spanish government has made it easier for companies in Catalonia to relocate their headquarters to a different part of Spain. This form of financial pressure could make life difficult for the Catalans that favour separation for Spain. That being said, there is still talk of the region declaring independence this week. Spanish stocks were hit hard by the political uncertainty last week, and global investors will look elsewhere for opportunities while the situation continues.

The Caixin survey of the Chinese services sector fell to 50.6 in September from 52.7 in August. It was the slowest growth rate in the industry in 21 months. This poses a small problem for Beijing as the administration is trying to shift the economy more towards a services based one, and the growth of the sector is lagging behind that of the manufacturing industry.

US indices finished slightly lower on Friday on the back of an interesting US non-farm payrolls report. The headline number showed a contraction, while unemployment fell and wage growth enjoyed a nice tick up. The storms would have distorted the headline figure, and the remained of the report pointed to a rate hike from the Federal Reserve in December.  Volatility is likely to be low as the US celebrates Columbus Day today.

The economic calendar is a bit on the light side today. At 7am, German industrial output will be announced and traders are expecting an increase of 0.6%. At 9.30am, the eurozone sentix investor confidence report will be revealed, and the consensus is for a reading of 28.6.

WTI and Brent Crude oil suffered a severe sell-off at the back end of last week after Russia clarified their position that they were open to the idea of extending the oil production freeze until the end of 2018, but it is far from a done deal. The major oil producer seemed to back track from Thursday’s stance, when they seemed keener to keep the production cap in place until the end of next year.

Hurricane Nate was downgraded to a tropical storm over the weekend, it is likely that more oil refineries in the US are in operation than traders were expecting going into the weekend. We may not have the same drop in activity at refineries that we saw in the wake of Harvey and Irma. It is also worth noting, that the Baker Hughes rig count dropped by 2 last week.

EUR/USD – has been in decline for the past month, and if it continues it could target 1.1662 or 1.1613. Rallies may run into resistance at the 50-day moving average at 1 1846, and a break above the metric could see it target the 1.2000 region.

GBP/USD – is still stuck in the downward trend it has been in since late September. The 100-day moving average at 1.3017 could act as support, and the next support below that could be the 1.2900 area. 1.3135, the 50-day moving average, might provide resistance to rallies.

EUR/GBP – is eyeing the 50-day moving average at 0.9021, and if the mark is cleared it may target 0.9226. Moves lower may find support at the 100-day moving average at 0.8907 or at 0.8800.

USD/JPY – has been driving higher since early September, and if the positive run continues it might encounter resistance at 114.49. The 200-day moving average at 111.93 could act as support. 

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