EUR/USD has spent the whole Asia-Pacific session below its 200 day SMA for the first time in quite a while. Last at 1.2864, the pair is down almost -1% for the week so far, following final agreement on the Cyprus bailout early yesterday at the Asia weekly open. The EUR/USD broke immediately to the upside on the news, printing a fresh 6-day high around the 1.3050, unable to close the previous gap down from Friday March 15 close, when Cyprus bailout conditions started to scatter across the wires.
It was mainly after Eurogroup chairman Jeroen Dijsselbloem's comments to Reuters and the Financial Times that the EUR/USD started to plunge, on fears depositors money all across the Eurozone could not be as safe as previously thought. "The reason is because regardless of how unique the problems are for Cyprus, the restructuring of the country's banks sets a precedent that could be revisited in future bailouts," said managing director at BK Asset Management Kathy Lien.
According to Kathy: "We are in the midst of a new phase of potential weakness for Germany, the Eurozone's largest economy," the analyst notes, which will ultimately add to Euro weakness overall. Currently the single currency is the weakest major currency among all for last 2 trading days. "The main reason why EUR/USD dropped to fresh lows after the Cyprus deal is because the deal does not eliminate the near term risks for Europe," Kathy expands, adding: "The 1.2880 level was the main support for the currency pair and now that it has been broken, the next level of support is the November low 1.2660," she concludes.
With still probable new elections in Italy few months ahead to add to Euro fears, the pair advances towards the end of the month without any major economic news in the agenda Euro related, but the long weekend for Eastern holidays all across the region, that will squeeze liquidity and could leave the single currency in the hands of speculators, who already lead the short side of the trade.
All and all, risks remain to the downside for the nearest term, say Valeria Bednarik, Chief Analyst at Fxstreet.com: "Short term oversold according to the hourly chart, the pair consolidates capped by former support in the 1.2880 area that now should attract selling interest if reached," the analyst notes, adding: "In the 4 hours chart technical readings head lower in negative territory, far from oversold readings, and supporting further slides for the upcoming sessions."
Now, many analysts, including Kathy and Valeria, point for next key support line at 1.2660. "Investors eye now the 1.2660 level," says Valeria, "past November low, as main target for current move," she concludes. The area is also a key Fibo retrace of latest daily up leg 1.2035/1.3711, as well as an important resistance price zone back in the summer of 2012.
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.