EUR/USD: 1.2950It is going to be a pretty chaotic session on Monday, with the situation in Cyprus very much hanging in the balance and after having squeezed higher on Friday on hopes that a solution to the bailout crisis would be found over the weekend, this now looks pretty unlikely to be the case.
A deal seemed to have been conjured up, whereby Eur 100K+ deposits at the bank of Cyprus would attract a 20% haircut, while a 4% levy would be charged at other banks, although this now seems to have been knocked back by the Troika (EU, ECB, IMF). A meeting in Brussels between the Eurogroup Finance Ministers has been delayed but is due to start about now (early Asia, Monday), in the hope of finding a way to resolve the mess, although it seems to be on the flip of a coin as to which way it will go. Until we get a result (the last meeting went for 12 hours, so don't hold your breath!), it is going to be one of those sessions where liquidity will be pretty non-existant, so the best bet is to sit on hands and wait and see. However, once the result is known the Euro is likely to go AWOL in one direction or the other, with the potential on the downside looking particularly ugly, so be careful! The Euro in very early interbank trade is at 1.2950.
Looking at it purely from the perspective of the charts, the Euro has now made it to the top of the channel, a break of which would see a quick run towards 1.3045 and then possibly higher to 1.3100, with the 100 DMA sitting just above at 1.3118. The charts are mildly supportive of a run in this direction and dips would appear to be buying opportunities (without taking Cyprus into account!).
Failure in Brussels to come up with a positive outcome, would quickly change that outlook and would see the Euro heading quickly back towards 1.2800 and below, to the recent supports at 1.2870 (200DMA) and 1.2840.
Beyond there, there is little support be found ahead of 1.2680 (61.8% of 1.2042/1.3710) and while this currently seems a long way off, negative news out of the EU could see us down here pretty quickly, so be nimble, but the charts suggest that this looks doubtful at present.
Bernanke will be speaking on the state of the US economy on Monday, although presumably there will be few surprises and he will continue the mantra that it is slowly picking up some steam, but that the easy monetary policy will remain in place, to ensure that it continues to do so. All up, the real focus should remain firmly on Cyprus.
Economic data highlights will include:
M: Bernanke speech
T: US Durable Goods, Consumer Confidence, Case Schiller house price index
W: German, EU Consumer/Industrial Confidence, US Pending Home sales
T: German Unemployment Retail Sales, US GDP, Chicago PMI, Personal Consumption Expenditure.
F: (Good Friday). US CPI, Rts/Michigan Consumer Sentiment Survey
