It was never likely that this weekend’s election result in Catalonia would make Spanish Prime Minister Rajoy’s life any easier, and so it would appear given that pro-referendum parties in Catalonia appear to have won at least two thirds of the seats, which could strengthen separation fears that could well cause problems further down the line, for the Spanish government. Mr Rajoy has already stated that any decision to hold a referendum would be unconstitutional and thus illegal; and while he can gain some comfort from the fact that the Artur Mas, the existing Catalan President appears to have lost support, it would appear that this support has gone to a much more pro independence party, the ERC which has doubled its number of seats. This would suggest that the pressure for a referendum could increase, not diminish, especially if current austerity policies push the various parties supporting a referendum on secession, closer together to work together towards that goal. The fact that turnout was the highest in nearly 30 years suggests that the Catalan people now want to have a say on this particular issue, which could well create further uncertainty surrounding Europe’s 4th largest economy at a time when, what they need most, is stability. What the consequences are of this particular outcome could well take awhile to unfold, but Mr Rajoy will need to tread carefully politically given that the Catalan region contributes around 20% of Spanish GDP, though it is also the most indebted, owing about €45bn, and has to rely on central government support. At some point next year Mr Rajoy will have to request a bailout from the EU which could well mean the surrender of some fiscal sovereignty in the process, with strong conditionality attached something that will not go down well with Spain’s autonomous regions. Market reaction to this outcome is likely to be determined by the direction of Spanish bond yields which have been falling recently, but could reverse in light of the weekend events. Also today Euro zone finance ministers have yet another opportunity to come to a decision on the long awaited Greece aid program, and whether it will consist of an initial €32bn or the full €44bn, which would have been due by the end of this year. A decision today, or this week, is not a foregone conclusion by any means, despite the recent market gains. There have been reports that the IMF will move from its original insistence that Greece’s debt to GDP ratio must be 120% of GDP by 2020, and moved to 124%, which would be a significant climb-down, especially given that Christine Lagarde has also stated that debt write downs must also be considered. This continues to be rejected out of hand by EU policymakers. There has also been talk of reducing the interest rate on loans to Greece, and extending maturities, as well as a €10bn debt buyback. There has also been speculation that the ECB would forgo its profits on its SMP program. The reduction of interest rates on loans could well prove problematic, especially if Greece gets to pay a lower interest rate than the rate the money. EURUSD – Friday’s move higher beyond the 50 day MA and 1.2920 has brought the euro within touching distance of trend line resistance at 1.3005 from the 2011 1.4940 highs. A break here has the potential to retarget the September highs at 1.3175. Any pullbacks are likely to find support around the 1.2910 area where the 50 day MA sits, while below that we also have trend line support from the 1.2050 lows now comes in at 1.2725. GBPUSD – the current pullback has the potential to run up to 1.6100 channel line resistance from the 1.6310 highs, after hitting the 1.6050 level on Friday. Above 1.6100 has the potential to target 1.6200 and the October highs. Any drift below 1.6000 could well find support around the 1.5970 area. To push conclusively lower we would need to see a move towards and break below 1.5810 trend line support from the 1.5270 lows as well as 1.5660. EURGBP – holding above the 200 day MA at 0.8080 last week saw the move to 0.8115 unfold and there remains the possibility of a move towards the October highs at 0.8165, as the current bullish phase continues. A move and close below 0.8080 would undermine the potential for further gains and reopen the downside and move back to 0.8020. On the downside trend line support comes in at 0.7990 from the July lows at 0.7755. USDJPY – we got to 82.85 last week before slipping back. The US dollar remains on track for the March highs above 84.00, while above the 81.80 area, which was the key breakout level. The break above the weekly cloud at 80.50 for the first time since April looks like the catalyst for further strong gains. Only below the 80.50 level suggests a move back towards the November lows at 79.00.