What is next in the Cypriot debacle? Lawmakers rejected the unprecedented levy on bank deposits so we’re now in limbo on the rescue package. The EUR strengthened slightly on the back of this as investors are gambling that the ECB (European Central Bank) will continue to support the country’s banks. We’re now back to comments from various ministers of “What matters now is we do whatever it takes to ensure the stability of the Eurozone”. Déjà vu? We’re back to where we were, have been, and are probably heading in that some kind of ‘deal’ will be struck, everyone will rejoice in the fact that the Euro and Eurozone has been ‘saved’ then they’ll all take a step back and realise “We’re actually in the same position, if not worse, than when we started”. Expect some bout of EUR strength then a retracement back to the downtrend for the single currency.So what are the likely outcomes for Cyprus? Will Russia come to their financial rescue and extend funding on the already outstanding 2.5 billion EUR loan? Perhaps. It will help the wealthy Russian’s who hold the majority of funds over the 100k mark in Cyprus and will safeguard the collapse of the Cypriot banking system and its inevitable exit from the Eurozone. I can’t see European officials allowing Russia to provide assistance however as it merely ‘kicks the can down the road’. A phrase we often heard when Greece was the headline act.
Cypriot banks and stock markets remain closed and a bank holiday has now been discussed to continue into next week for fear of a run on the banks. Whatever the outcome in the coming days it has shaken confidence in investors and the Eurozone as a whole. Cyprus are minuscule in an economic sense however it’s the precedent’s that have been set on deposits that were once held as sacrosanct that has shaken confidence in the already fragile single currency.
The flow of news from Cyprus has eased somewhat today after the headlines of Monday and Tuesday however I expect this to come back into sharp focus later in the week with the EUR set for volatility. If Cyprus are forced to leave the EUR will investors consider that as bullish or bearish for the single currency? What is the potential fallout for Cyprus with their relationship with Russia? Cyprus is the main driving factor for EUR trading at present and I expect this to continue into the latter part of this week. We’re currently trading at 1.2950 on EUR/USD and we’re at 1.1693 on GBP/EUR. As I've said previously I remain bearish on the EUR so I’d expect if we can break through 1.29 to the downside that will open us up for a move down to the resistance level of 1.2678. If you’re buyer of EUR against GBP I’d look at working orders around 1.17/1.1750 and 1.18 at a push. Utilise a stop loss at the 1.16 level to protect any adverse movements against you.
If you have any questions please let me know
Written by Liam Alexander