The crisis in Catalonia is deepening. How to get the best from the situation in the region?

Catalonia is about to enter into a very serious confrontation with Spain after the parliament in the region voted its independence from Spain and the central government in Madrid was given the power to remove the separatist leadership. The Spanish Senate approved the measures that gave Mariano Rajoy the power to impose control over the Catalan administration through Article 155 of the Spanish Constitution.

European leaders remain firmly behind Mariano Rajoy's government, with Donald Tusk, the EU president, saying that "Spain remains our only interlocutor, but we do not support the forced abolition of power in Catalonia."

Independence activists called for the creation of a human shield around administrative buildings in order to thwart the Spanish efforts to take control of the area. All this, however, could lead to escalating tensions and massive riots in the region, which would have a severe negative impact on the Spanish index Ibex 35 and the euro.

Here is the current market reaction and how to get the most out of the stacked circumstances.

Spanish 10-year bonds fell sharply, significantly increasing the yield gap with their German competitors, while Spanish IBEX 35 declined by 1.4%. Against the backdrop of the confrontation in Spain and Mario Draghi's plans to continue the QE program, the EUR was the weakest currency today, down 0.60%.

The Spanish IBEX 35 declined 1.4% before the end of the European session, with the expectation that the problem will deepen and observe a deeper correction. Technically, the price also gives us a good opportunity for short positions next week. There is a breakthrough in the long-term upward trend coupled with a 200SMA breakthrough. The index corrects to the long-term diagonal, 200SMA and 38.2% correction of the new downward trend. Dem (13) is in the overpurchase area, still not giving a signal. 50 below 200SMA - negative for the price. Expectations are on Monday to open the index downwards, with any adjustment then giving us the opportunity for Short with SL over the last peak, the top diagonal of the new trend and 50% Fibonacci correction.

IBEX Chart 35

Alternative Scenario: If the price rises to levels above the long-run diagonal, 200SMA and the short-term downward diagonal, the negative scenario will break and more likely to see Spanish stocks grow.

Let's look and EUR/USD
The fundamental contradictions in Spain and the continuing policy of cheap money on the part of the ECB will weigh on the united currency, at least until we see a lasting solution to the problems in Catalonia.
Technical EUR/USD managed to activate the on-going H & S on a daily chart and gives us a good short term Short for the 1.1500 levels, where the price is expected to meet support of a 38.2% Fibonacci correction and a long-term horizon. Then our expectations are the price to adjust upwards, looking for a second opportunity for Short with the new trend. The SL order would be suited to levels around 1.1920.

EUR/USD chart

Alternative Scenario: If the price goes back into the figure and breaks the tip formed by the right shoulder, the negative scenario will be spoiled and we are more likely to see an increase in the value of the euro.

Jr Trader Petar Milanov

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