By Mike Ber

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Is it a Country or a Template?

The recent developments in Cyprus at the beginning of the week proved to be negative for EUR/USD pair. The apparent lack of professionalism among European bodies was on display during the weekend. Somehow the problem was resolved and Cyprus reached an agreement with the creditors, but at the end the price was very high. Market participants still unsure how Cyprus’ economy will be affected in near and long-term future. The prospects are so bleak, that we won’t be surprised to hear about Cyprus leaving the Euro-zone or the need of another bailout attempt with-in the next few years.

Markets continue to debate if the mandatory levy on depositor’s accounts could be used as a template for any future bailout attempts. This is very important, because sooner or later Italian and Spanish banks will ask for help. There is no reason to believe that depositors will refrain from withdrawing all the funds from bank accounts after seeing what happened in Cyprus. It remains to be seen how Europe will be able to provide financial assistance in the future.

Markets hate uncertainty.

While our focus remained on the situation in Cyprus, another factor that can play a negative role for the Euro is unfolding before our eyes.

Persistent rumors during the week of an imminent downgrade of Italy by Moody’s spooked investors. In addition to that, it looks like we are heading for another election in Italy, after the latest unsuccessful attempt to form a governing coalition on Wednesday.

Trading EUR/USD

In the medium term the pair is continuing to trade in a bearish fashion. No changes in our outlook. EUR/USD is trading within the 1.27091 – 1.29092 range.

We mentioned during the Weekend that our first downside target was 1.2838 level of support. We took profits at this level, but continue to hold a short position. Our next target is 1.27091 area.

EU(7)

EUR/USD – 1 Hour Chart

If  1.27091 level of support will be taken out, our next target is 1.26138.  Keep in mind though that EUR/USD came down significantly during this week, and we can expect a rebound anytime soon. Any bounces at this point should be capped at 1.29.92 – 1.29443 levels of resistance.

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