Euro to US Dollar Focus: Will Catalonian Independence Bid Trigger EUR Crash?

Euro Outlook: Losses Possible if Catalan President Declares Independence

Given the circumstances, the Euro has been faring well against the US Dollar today. The EUR USD exchange rate has been progressively rising this week, in spite of high tensions in the Spanish region of Catalonia.
The actual source of the Euro’s rise today has been news of a higher trade balance in Germany.

In August, the national trade surplus has risen from 19.6bn to 20bn. Elsewhere, the seasonally adjusted trade surplus has also increased while Germany’s current account has risen too.

This news has been especially positive because of the Euro strengthening – under such conditions, there would usually be less exports from Germany because of higher import prices overseas.

Commenting on the results was Carsten Brzeski, an economist at ING;

‘While financial markets and the [European Central Bank] have been discussing the risks of a stronger Euro, the country which often claims to be export world champion is still enjoying a strong export recovery.

The year 2017 should be the best year for German exports since 2010. Looking ahead, the biggest risks for the German economy and the export sector come from the outside’.

The Euro’s current strong performance might fade quickly in the future, depending on what occurs in Catalonia.

Following a vote which apparently saw majority support for independence, all eyes have been on the Catalonian parliament meeting later today.

If regional leaders declare official independence then there could be turmoil in Barcelona, as such a move might trigger an immediate and severe reaction from the Spanish government.

Suffice it to say, the Euro could tumble in such an event.

US Dollar Drops as Trump’s Policies are Blocked

In a case of déjà vu, the US Dollar has dropped against the Euro because of political problems.

This time round, the issue is whether the Trump administration can actually pass any laws when there is such hostility between Trump, the Republicans and the Democrats.

In the latest setback, Trump has seemingly failed to win the Democrats over with a two-part compromise bill.

The first part is that instead of cracking down on ‘Dreamers’ in the US, Trump will take a more watered-down approach. These individuals entered the US as young illegal immigrants, but have benefited from protections against deportation in the past.

In exchange, Trump wants Democrats to approve funding for his vast Mexican border wall, something that has been quickly rejected by top Democrats in the House of Representatives and the Senate.

Looking ahead, the US Dollar could recover on Wednesday evening when Federal Reserve minutes come out.

If the minutes suggest that policymakers are considering a third 2017 interest rate hike in December, the US Dollar could make a significant recovery against the Euro.