FXstreet.com (San Francisco) - Finally, the EUR/USD has closed
the week with a new test at 1.3000 on the back of the latest
developments in Cyprus. After a week providing drama, Cyprus has
approved 9 bills as first step to get the EU bailout. Now they are
pretending being an efficient parliament while building a credible
plan B that Cyprus must show in a new eurogroup meeting on Sunday.
"Is Cyprus just a road bump?" asked BK Asset Management's analyst
Kathy Lien, pointing that "currencies and equities traded higher
today on the hope that the problems in Cyprus will prove to be only
a minor road bump in the long road to recovery for the Eurozone and
the global economy."
Late Friday, the Cypriot Parliament approved bills on solidarity
funds and capital control, but delayed the vote on the levy to next
Saturday, and with the EU group meeting in Brussels on Sunday, next
week opening could again start with gaps all across the board.
According to Valeria Bednarik, "the EUR/USD has reflected
investors' sensitiveness to news this Friday, moving on headlines
rather than on technical readings. And the pair will likely remain
headline-leaded next week. However, the pair was unable to break
above a daily descendant trend line coming from 1.3710, currently
around 1.3010, daily high, and without a break higher, there's
little room for advances."
She also adds: "daily charts maintain a strong bearish tone, and
whatever is the outcome of current crisis, the fact is that
European situation is far from optimistic. Technical readings
reflect so: upward movements may extend up to 1.3140, this month
high if the outcome is positive, thus selling interest around the
level should halt the advance. Renewed selling pressure below
1.2840/80 price zone on the other hand, will only support the
dominant trend and favor a bearish continuation with past November
2012 monthly low at 1.2660 then at sight."
From a technical point of view, the EUR/USD had a pretty uneventful
day, situation that extended in fact since the week started. 1.2880
has proved to be a strong static support level as the pair managed
to bounce higher from there over the last few days, although
sellers remain aligned in the 1.3000, confining the pair to a tight
Nomura strategist Saeed Amen questioned in a recent report the
current trend and pointed about the possibility of the EUR/USD to
see upside ahead. Amen commented that spot has repeatedly failed to
break below the 20D SMA, which suggests that there is important
support on the downside. Further, he notes that bandwidth has also
fallen significantly, suggesting that spot is likely to range. He
writes, "Hence, spot is likely to retrace within the range higher.
Also the RSI appears to have bottomed out, suggesting it has
reached a short-term low. Our target is 1.3020 (above 20D SMA)."
On the other hand, Lee Hardman, FX Strategist at the Bank of Tokyo
Mitsubishi UFJ noted that the euro has been undermined by the
release of the much weaker than expected euro-zone PMI surveys for
March. "The biggest surprise in the March readings was the drop in
business confidence in Germany dampening hopes that the German
economy will help lift the rest of the Eurozone out of recession."
As effect on the EUR/USD, Hardman states that "the increasing
likelihood of a more prolonged euro-zone recession supports our
view that the ECB may ease monetary policy further later this year
helping to lower the euro."
Just as reminder, early this week, UBS cut its EUR/USD forecast for
the 1-month to 1.30 from 1.37 expected before and 3-month to 1.28
from 1.30 as the Italian elections and Cypriot problem "suggest the
eurozone debt crisis is set to weigh on the euro again." Rabobank
3-month target is 1.2800 and the Goldman Sachs 3-month forecast has
been reviewev to 1.3600 from 1.4000. However, according to the
FXstreet.com Forecast poll, the EUR/USD sentiment remains neutral
around 1.3000 despite Cyprus and Italy.