EUR/USD – Drops Below 1.28 as Cyprus Concerns Continue

EUR/USD continues to drop, losing more ground since the announcement of a rescue package for Cyprus. The bailout agreement that was announced earlier this week has not improved market sentiment as banks in Cyprus remain closed as officials try to sort out the details of the bank haircut. In the Eurozone, German Consumer Climate came in as expected, and the Italian 10-year bonds posted smaller yields than at the previous auction. However, Italian Retail Sales was very weak. In the US, today’s highlight is Pending Home Sales. The markets will be hoping for better news after New Home Sales disappointed on Tuesday.

Last week’s crisis over the Cyprus bailout agreement reached a fever pitch, and there was even talk that the island country might exit the Eurozone if the ECB carried out its threat to cut off emergency funds. Although a new bailout agreement was reached on Monday, the lack of details has left the markets wary. With a lingering fear of a bank run in Cyprus, all banks throughout the country will remain closed until Thursday. The size of the haircut imposed on accounts larger than 100,000 euros is still not clear. The euro responded to the new bailout by plunging about 150 points on Monday, and has now dropped below the 1.27 level.  Meanwhile, the head of the Eurogroup, Dutch finance minister Jeroen Dijsselbloem, stated that the Cyprus deal could serve as a template for future bank restructurings in the Eurozone. Dijsselbloem later backtracked on these comments, but his ill-timed remarks have likely made holders of large deposits in other zone countries even more jittery.

With recent US numbers pointing upwards, there has been a lot of talk of the US recovery deepening. However, Tuesday’s major releases point to continued weakness in housing, consumer confidence and manufacturing. Core Durable Goods Orders posted its first decline since last September, dropping 0.5%. The markets had expected a 0.7% gain. CB Consumer Confidence failed to repeat February’s excellent numbers, dropping from 69.6 points to 59.7 points, way below the estimate of 67.9 points. New Home Sales also declined, coming in at 411 thousand, well of the forecast of 426 thousand. The US will have to produce better data from its key releases to convince the market that the recovery is deepening and that the economy is indeed headed in the right direction.

EUR/USD for Wendesday, March 27, 2013

1.2788 H: 1.2867 L: 1.2784

EUR/USD Technical

EUR/USD continues to lose ground, as the pair has dipped below the 1.28 line. The next line of support is 1.2757, but given pair’s downward trend, this line could be tested. The support level of 1.2689 is stronger. On the upside, 1.2805 is providing weak resistance. It could face further activity if the euro can rebound. This is followed by resistance at 1.2880.

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 continues to point to movement towards long positions. This trend is continuing, despite the fact that we are not seeing this direction in the currency pair, as the euro has posted significant losses this week. The activity in the ratio points to an expectation that EUR/USD will rebound and reverse the pair’s current downward trend.

The euro has had an awful week so far, shedding over two cents against the US dollar. Will the downward trend continue? The markets continue to be nervous despite the Cyprus bailout agreement which has hammered out between Cyprus and the EU. We can expect more volatility as EUR/USD tries to stem the bleeding and find its footing.

EUR/USD Fundamentals

• 7:00 Gfk German Consumer Climate. Estimate 5.9 points. Actual 5.9 points
• 7:00 German Import Prices. Estimate 0.2%. Actual 0.3%
• 10:00 Italian Retail Sales. Estimate 0.4%. Actual -0.5%
• 10:13 Italian 10-year Bond Auction. Actual 4.66 %
• 14:00 US Pending Home Sales. Estimate -0.3%
• 14:30 US Crude Oil Inventories. Estimate 1.5M
• 15:00 US FOMC Member Charles Evans Speaks
• 15:30 US FOMC Member Eric Rosengren Speaks

*Key releases are highlighted in bold

*All release times are GMT

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