Euro Bears Looking To Cyprus

Includes: FXE
by: FXstreet

The week for the single currency is about to end with even more uncertainties than it started with on Monday, when the Cypriot developments hit the global markets. The breakeven point was the parliamentary rejection to the levy on bank deposits. It's then followed an extension of the bank holiday until Tuesday, but curiously there were no crowds surrounding ATMs, or maybe they had just run out of cash already. The next step saw the finance minister cancelled a press conference, leaving EU officials crossing its fingers ahead of the weekend, hoping for a solution in the upcoming days. Fanning the flames, the ECB gave an ultimatum to the island: it decided to keep ELA levels until March 25th, before cutting Cyprus loose.

… What lies ahead

Formerly, before Cyprus mired in the current swamp of uncertainty, rumors and anti-euro protests, the FX community used to voice that Cyprus not only represents a tiny percentage of the euro bloc, but also its financial situation should be fixed quickly, underestimating its collateral effects.

What happened, then? Why all of a sudden Cyprus is in every headline and its dark clouds clearly portend major concerns for the next days? The fear of contagion to the euro-periphery has been contained so far, although the feeling that the solution would involve more arduous negotiations has been growing bigger since the beginning of the week.

While desperate looks have now turned to Russia in search of last-minute financial aid, Cyprus's officials continue to guess a Plan B, C or whatever, as alternatives are running short very quickly alongside the EU and ECB pressure for a solution. Furthermore, rumors look set to continue to rule in the upcoming days, as market participants are looking with fear the next Tuesday, when banks will re-open their doors.

Curiously, there were poll results hovering over the markets showing that nearly 70% of Cypriots would leave the euro. The old and famous law "if something can go wrong, it will" feels very apt around now.

Technically speaking, EUR/USD is orbiting around the key 1.2900 handle, below the down-trend line resistance set from 2013 highs.

The already tested support remains in the region of 1.2880/85, where converge the 50% Fibonacci retracement of the July 2012 - February 2013 upside and December lows, ahead of 1.2680/1.2700 (November 2012 lows, 61.8% level and bottom of the channel).

Reinforcing the bearish sentiment, the daily RSI is just above the 40.0 level, indicative that the downleg would not be complete.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.