EUR/USD – Cyprus Clinches Bailout Agreement

EUR/USD is showing some movement in Monday trading, as negotiations went down to the wire between Cyprus and its international lenders. In the end, a bailout agreement was hammered out between the parties, avoiding a bank crisis which could have spread to the Eurozone. In the European session, the euro was trading slightly above the 1.30 level. On Monday, there is little in the way of events, with no releases out of the Eurozone. In the US, Federal Reserve head Bernard Bernanke will join up with Bank of England head Mervyn King at a panel discussion at the London School of Economics. 

There was good news out of Brussels on Monday morning for the markets, which had anxiously followed the drama in Cyprus last week. Responding to Cyprus’s rejection of a bailout agreement which included a bank levy on all deposits, the ECB had threatened to cut off all emergency aid to banks, which would have resulted in the collapse of the country’s banking sector and possibly leading to a Euroexit by the small island country. There was a fear that a failure to reach a deal would lead to a financial market selloff which could spread to the Eurozone. In the end, Cyrpus will receive EUR10 billion in rescue funds, and the second largest bank in Cyprus, Laiki Bank, will be winded down. All deposits below EUR100,000 will be transferred to the Bank of Cyprus  and “fully guaranteed”, but deposits over that sum will be frozen and used to pay off Laiki’s debts and recapitilize the Bank of Cyprus. According to the EU, this will raise EUR4.2 billion. The agreement is sure to be unpopular in Cyprus, and will mean the loss of thousands of jobs as Laiki Bank is winded down.

As the locomotive of the Eurozone, there are high hopes that the German recovery will improve and help the Eurozone recover. Indeed, it is no exaggeration to say “as goes Germany, so goes Europe”. German data has certainly looked better than the numbers we are seeing out of other major economies in the Eurozone, but last week’s German numbers raised concerns that the Eurozone’s largest economy is running into turbulence. German Service and Manufacturing PMIs missed their estimates, and on Friday, German Ifo Business Climate disappointed, dropping from the previous release and falling below expectations. There was some good news, as German ZEW Economic Sentiment was well above the forecast. The markets will be hoping for a better week, as Germany releases retail sales, consumer confidence and employment data later this week. 

EUR/USD for Monday, March 25, 2013

1.3015 H: 1.3048 L: 1.2985

EUR/USD Technical

EUR/USD showed some strength in the Monday Asian session, pushing above the 1.30 line. The pair is receiving support at the round number of 1.3000. This is a weak line, and has already seen activity in Monday’s Asian and European sessions. The next support level is 1.2950. On the upside, 1.3080 is providing resistance. This is followed by a strong line at 1.3130.

• Current range: 1.3000 to 1.3080

Further levels in both directions:

• Below: 1.3000, 1.2950, 1.2882, 1.2802 and 1.2757
• Above: 1.3080, 1.3130, 1.3170 and 1.3280

OANDA’s Open Position Ratios

The EUR/USD ratio is showing movement towards short positions in Monday trading. The pair has been fluctuating, so we are not seeing any sustained movement in either direction. The activity in the ratio signifies an expectation that the euro will lose ground against the US dollar.

The euro is showing some volatility in Monday trading, following the dramatic announcement that an agreement had been reached between the Cypriot government, the European Union and the International Monetary Fund. With no economic data scheduled on Monday from either the Eurozone or the US, we could see further volatility as EUR/USD tries to find its footing. 

EUR/USD Fundamentals

• 4:15 US FOMC Member William Dudley Speaks in New York
• 17:15 US Fed Chair Bernard Bernanke Speaks in London

*Key releases are highlighted in bold

*All release times are GMT

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