EUR/USD – Cyprus, Italy Worries Weigh on Euro

 EUR/USD remains under pressure in Thursday’s European trading. The pair dropped into the mid-1.27 range, but has bounced back and is now testing the 1.28 line. The Cyprus saga continues, as the country reopens its banks for the first time in almost two weeks. The government has imposed tight capital controls, as there is a fear that irate and nervous bank deposit holders will cause a run on the banks. The political impasse in Italy shows no signs of letting up, as coalition talks have not borne fruit. Looking at economic news, German releases were a mix on Thursday. Retail Sales beat the estimate, but Unemployment Change was dismal. In the US, this week’s numbers have not looked sharp, and the market will be hoping for better news from today’s highlight, which is Unemployment Claims.

After a frantic week of negotiations over a bailout between Cyprus, the EU and the IMF, a bailout agreement was announced on Monday, but the markets remain jittery. The agreement has not brought calm to the small Eurozone member, which has been at the center of a financial crisis over the EUR10 billion bailout. The country’s banks are scheduled to reopen on Thursday, after being closed for business for almost two weeks. Fearing a bank run, the government has imposed strict controls, including limiting withdrawals to 300 euros a day, and a ban on cashing checks. The size of the haircut which will be imposed on accounts of over 100,000 euros is still unknown, and there are rumors that these depositors could lose up to 40% of their savings. The euro has taken a hit over the crisis, dropping over two cents against the dollar this week. 

All eyes have recently been focused on Cyprus, one of the Eurozone’s smallest economies. Meanwhile, another crisis continues to percolate in Italy, the zone’s third largest economy. The inconclusive elections have led to a political crisis that is bewildering even by Italian standards. Coalition talks have not made any progress, as the anti-establishment 5-Star Movement has rejected offers from center-left leader Pier Luigi Bersani. Will Italians have to go yet again to the polls? Analysts have noted that Greece also was forced to call new elections, and such a move will certainly not increase investor confidence in the Eurozone.

There has been a lot of talk of the US recovery deepening, but this week has been a disappointment, as economic releases point to continued weakness in housing, consumer confidence and manufacturing. The markets had hoped for strong housing numbers this week, but two major housing releases were weak. New Home Sales fell sharply from 437 thousand to 411 thousand, well below expectations. Pending Home Sales also looked weak, declining 0.4%. The forecast stood at -0.3%. The housing market is a critical sector of the US economy, and there will have to be significant improvement in this sector if the recovery is to take root.

EUR/USD for Thursday, March 28, 2013

1.2801 H: 1.2814 L: 1.2755

EUR/USD Technical

EUR/USD is showing some volatility in Thursday trading, as the pair tests resistance at 1.2805. This line could fall if the euro shows any upward movement. There is stronger resistance at 1.2880. On the upside, 1.2757 is providing support. This is followed by 1.2689, which has remained intact since November 2012.

Current range: 1.2757 to 1.2805

Further levels in both directions:

• Below: 1.2757, 1.2689, 1.2624, 1.2495
• Above: 1.2805, 1.2880, 1.2950, 1.3000 and 1.3080

OANDA’s Open Position Ratios

The EUR/USD ratio is not showing any movement in Thursday trading. The pair has recovered after dipping into the mid-1.27 range, as it tests the 1.28 level. If EUR/USD breaks out, we can expect increased movement in the ratio as well.

The euro has had an awful week, shedding about two cents against the dollar. The markets remain nervous over the crises in Cyprus and Italy, and mixed data out the Eurozone has not helped. We can expect the currency to remain under pressure, and could see it dip back into 1.27 territory.

EUR/USD Fundamentals

• 7:00 German Retail Sales. Estimate -0.5%. Actual 0.4%
• 8:55 German Unemployment Change. Estimate -2K. Actual 13K
• 9:00 Eurozone M3 Money Supply. Estimate 3.2%. Actual 3.1%
• 9:00 Eurozone Private Loans. Estimate -0.7%. Actual -0.9%
• 9:10 Eurozone Retail PMI. Actual 43.7 points
• 12:30 US Unemployment Claims. Estimate 340K
• 12:30 US Final GDP. Estimate 0.5%
• 12:30 US Final GDP Price Index. Estimate 0.9%
• 13:45 US Chicago PMI. Estimate 56.5 points
• 14:30 US Natural Gas Storage. Estimate -85B

*Key releases are highlighted in bold

*All release times are GMT

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.