EUR/USD: 1.2950The Euro and equity markets have partially recovered from the gap-lower opening levels on Monday following the Cyprus bailout deal, but remain vulnerable to further losses in sessions to come. The fear of contagion saw an initial exit from Italian and Spanish bonds, while safe haven German bunds saw strong demand. There has been something of a recovery in the peripheral markets as the session wore on, with traders/investors now awaiting further direction from Cyprus. Likewise, European equity markets, which opened down 1.5% - 2%, slowly regained their lost ground. The Dax and FTSE finished -0.4%, Spain -1.7% and Italy -0.9%.
Cypriot banks are now to remain closed until Thursday to avoid a run on deposit withdrawals, and the parliamentary vote to accept the bailout terms has been delayed from Monday until later today, so until then it is going to be a pretty nervous session. A "no" vote could lead to fears of an exit from the Euro altogether and the market is concerned about EU nations being caught up in the melee. A pretty nervous situation all round......
In the meantime, while we await the outcome of the vote, the Euro has traded to a low of 1.2881, pretty much in line with our support level at 1.2875 (50% of 1.2042/1.3710), before a bounce back above 1.2900 and, since then, attempting to close the gap to Fridays close at 1.3075. We still have some way to go to achieve this and need to clear though the sellers, now lined up at 1.3000 in order to make any further progress (today's high 1.2995). One way or the other, assuming that the Cyprus parliamentary vote goes ahead, it is going to be a pretty hectic session later on, but until then, little looks likely to happen.
From a fundamental perspective it is pretty much the toss of the coin, as far as the Euro is concerned,, but purely from the charts I suspect that it may continue to recover its lost ground, with the 4 hour charts apparently pointing mildly higher. However if we were to see the 1.3050/1.3100 area again, I think there will again be plenty of sellers. The top of the channel is now at 1.3070, while Friday's high lies at 1.3106, which would be difficult to overcome. The 100 DMA is at 1.3118, and so any Euro gains are not going to be easily accomplished, but above here, although doubtful, would lead towards 1.3165 and possibly to 1.3200.
On the downside, 1.2910 (1.2915 =76.4% Fibo support of 1.2660/1.3710) will again see buyers. Below the day's 1.2881 low there is a whole swathe of support beginning at 1.2875, which in turn lies ahead of the H/S objective at 1.2840, and is backed up by the 200 DMA at 1.2838. If/when we go below this expect the Euro to accelerate towards 1.2680..but not today - hopefully!
Be flexible, with a short term view of heading a bit higher but looking to sell into strength for an eventual retest of levels below 1.2900. It is going to get pretty hairy out there so stay nimble!
The EU Trade Surplus today came out within expectations (EUR 9.0b) but got lost in the news. Today's highlight will be the ZEW Economic Sentiment Survey and will have a greater consequence on direction.
Economic data highlights will include:
German, EU ZEW Survey, US Housing Starts, Building Permits.
