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25 Mar 2013
Euro enjoying its present
FXstreet.com (Barcelona) - The single currency regained the psychological mark of 1.3000 on Monday, giving away some ground after testing fresh weekly highs in the proximity of 1.3050. The boost in EUR/USD came soon after the Troika and the Cypriot Government finally reached a deal that unleash a €10 billion loan to the island, to be paid in quarterly tranches. Although the sensible issue of bank-deposits levy could not be averted, saving accounts holding less that €100K euros would be spared. A different fate however lies ahead for deposits over the €100K threshold, to be dealt with in different ways depending on the bank they were held in. The main point of the last minute deal is that now the ECB will keep the tap open, pumping more liquidity into the Cypriot banking sector under its ELA programme.
… The tip of an iceberg
With the basics of the deal behind, market participants would now focus on Tuesday, where the Cypriot banks are meant to re-open their doors. However consensus expects crowds to rush into the banks and capital outflows to accelerate, those hopes would vanish after the new capital controls – now defined as ‘administrative measures’ by the Eurogroup – start to play out.
As traders digest the events, longer-term concerns would gradually emerge. The vast majority of the deposit base – around €68 billion – would directly vanish or be immobilized and thus useless to generate any benefit, let alone to contribute to the national economic activity, intensifying the crisis that has been whipping the country as of late.
Furthermore, the prevailing idea that deposits are not sacred anymore – stressed by the actions of the ‘Troika’ and Co. – would surely hit investors’ confidence in the local financial sector, but nothing would impede that this new and extremely dangerous concept transcends to the rest of the peripheral members of the euro area. It will be a matter of time.
At the moment, the cross has pierced the top of the downtrend channel set from February highs, navigating in the boundaries of 1.3000
The interim resistance lies at 1.3075 – Fibonacci retracement of 38.2% of July’12 – February’13 upside – ahead of 1.3107 (March 15th high) en route to 1.3134 (March 8th high).
On the flip side, pullbacks remain contained by the area around 1.2880/85, where converge the 200-day moving average, the 50% retracement and December lows. Further downside would then expose the region of 1.2660/80, home of the November lows and the 61.8% retracement.
… The tip of an iceberg
With the basics of the deal behind, market participants would now focus on Tuesday, where the Cypriot banks are meant to re-open their doors. However consensus expects crowds to rush into the banks and capital outflows to accelerate, those hopes would vanish after the new capital controls – now defined as ‘administrative measures’ by the Eurogroup – start to play out.
As traders digest the events, longer-term concerns would gradually emerge. The vast majority of the deposit base – around €68 billion – would directly vanish or be immobilized and thus useless to generate any benefit, let alone to contribute to the national economic activity, intensifying the crisis that has been whipping the country as of late.
Furthermore, the prevailing idea that deposits are not sacred anymore – stressed by the actions of the ‘Troika’ and Co. – would surely hit investors’ confidence in the local financial sector, but nothing would impede that this new and extremely dangerous concept transcends to the rest of the peripheral members of the euro area. It will be a matter of time.
At the moment, the cross has pierced the top of the downtrend channel set from February highs, navigating in the boundaries of 1.3000
The interim resistance lies at 1.3075 – Fibonacci retracement of 38.2% of July’12 – February’13 upside – ahead of 1.3107 (March 15th high) en route to 1.3134 (March 8th high).
On the flip side, pullbacks remain contained by the area around 1.2880/85, where converge the 200-day moving average, the 50% retracement and December lows. Further downside would then expose the region of 1.2660/80, home of the November lows and the 61.8% retracement.