Catalonia’s President Carles Puigdemont said that the region earned the right to independence but suspended the decision in order to open the door for a dialog. The speech left many people confused. Is it a climb-down? Will Spain accept a dialog?

It seems that at least for now, tensions are lower. EUR/USD reacted positively and continues drifting higher. At a minimum, the pair is not worried about the situation. At 1.1825, the pair continues its drive higher. Resistance awaits at 1.1830, the high seen last year. It is followed by 1.19. Support is at 1.18, followed by 1.1760.

Spanish stocks opened the day higher, surging as the worst scenario of an imminent declaration of independence was avoided.

Will this last? The Spanish government is convening to decide on a response. Spain awaits the decision of PM Mariano Rajoy. They could invoke Article 155 of the Spanish Constitution, suspending the autonomy of Catalonia. This could turn markets around. If they refrain from any major steps, markets could continue celebrating.

A lot depends on the biggest opposition party, the socialist PSOE. They hold the balance of power as Rajoy’s PP does not command a majority in the Spanish parliament. They could back any major steps by Rajoy or impede them. They have expressed their disappointment of Puigdemont’s decision but haven’t said would steps should be taken.