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28 Mar 2013
Forex: EUR/USD continues with its south route as Cyprus great bank opening comes
FXstreet.com (San Francisco) - Which is the EUR/USD next stop, 1.29 or 1.26? asked in a recent report the BK Asset Management analyst Kathy Lien after pointing that the EUR/USD extended losses following a brief pause on Tuesday. But on Wednesday, the Euro remained weak across the market as investors were concerned on Cypriot banking opening and a possible money run.
Market participants keep the focus on Thursday, when the Cypriot banking sector will be put to the test, as local banks will re-open their doors after the long bank holiday. Furthermore, tension amongst investors is expected to rise in light of the implementation of capital controls by the government.
The BNP Paribas team called the situation as "The Cyprus moment," as they believe that "the euro zone could be slipping into a new period of turbulence even before it has had a chance to return to growth." BNP points that "If the problems in Cyprus are not sorted out, one could at least hope that it will not have a systemic impact, given the small relative size of the problem. However, as with the political log-jam in Italy, the timing is unfortunate."
"The bank states the The euro zone had been gradually returning to stability, although it was struggling to return to growth, at a time when the US and Japanese economies, as well as those of some major emerging countries such as China and Brazil, have shown signs of improvement," the bank continues.
So, investors are cautious to buy euros in the short term and the single currency has been trading under pressure to the downside. "Taking a look at the daily chart, there's no question that this breakdown in the EUR/USD is significant and paves the way further losses. However it is rarely that simple," comments Kathy Lien. "Most of the sell-of happened during the first half of the European trading session and since then the currency pair has traded water, leaving traders to wonder if there is enough momentum for a further push lower."
The EUR/USD is currently trading at 1.2775, around 90 pip down from Wednesday's opening price and after reaching the lowest level since November 21st at 1.2750. In the short term, the EUR/USD is moving slightly bearish according to the FXstreet.com Forex Studies. Indicators such as MACD, CCI and Momentum are bearish while the Stochastic is pointing bullish in the 1-hour chart.
The pair will face next support at 1.2730 (low Nov.19) followed by 1.2685 (weekly cloud base) and then 1.2680 (61.8% of 1.2042-1.3711). On the upside, a breakout of 1.2922 (MA10d) would then target 1.3050 (high Mar.25) and finally 1.3107 (high Mar.15).
On a wider timeframe, Kathy Lien comments that if "Thursday's economic reports show improvement in the German economy, the EUR/USD could rebound and aim for a retest of 1.29. However if the data turns out to be weak, then it could be just the catalyst that the EUR/USD needs for a move down to 1.26. Without a catalyst, it may be difficult for the currency pair to extend to that level."
Societe Generale senior analyst Sebastien Galy states that the EUR/USD is open to a move to the next level in sight at 1.2600. He believes that it suggests a strategy of selling on short covering to target the new lower range with a bottom at 1.26. “As a reminder our year end forecast goes into the 1.20s. Models have worked surprisingly well for EUR/USD, the last short covering came close to 1.31 given by the 80 percent quantile model, though our traders nailed it perfectly with a call for 1.3050.”
The Day ahead:
Among the great Cypriot banks opening, there are several economic data that investors must take in count. Germany will publish its retail sales and unemployment data and the United States will release the last revision of the Q4 GDP. Another reports to pay attention are Canadian GDP and the Chicago Purchasing Managers' Index.
- German Unemployment Change
- German Retail Sales
- US Gross Domestic Product annualized
- Chicago Purchasing Managers' Index
Market participants keep the focus on Thursday, when the Cypriot banking sector will be put to the test, as local banks will re-open their doors after the long bank holiday. Furthermore, tension amongst investors is expected to rise in light of the implementation of capital controls by the government.
The BNP Paribas team called the situation as "The Cyprus moment," as they believe that "the euro zone could be slipping into a new period of turbulence even before it has had a chance to return to growth." BNP points that "If the problems in Cyprus are not sorted out, one could at least hope that it will not have a systemic impact, given the small relative size of the problem. However, as with the political log-jam in Italy, the timing is unfortunate."
"The bank states the The euro zone had been gradually returning to stability, although it was struggling to return to growth, at a time when the US and Japanese economies, as well as those of some major emerging countries such as China and Brazil, have shown signs of improvement," the bank continues.
So, investors are cautious to buy euros in the short term and the single currency has been trading under pressure to the downside. "Taking a look at the daily chart, there's no question that this breakdown in the EUR/USD is significant and paves the way further losses. However it is rarely that simple," comments Kathy Lien. "Most of the sell-of happened during the first half of the European trading session and since then the currency pair has traded water, leaving traders to wonder if there is enough momentum for a further push lower."
The EUR/USD is currently trading at 1.2775, around 90 pip down from Wednesday's opening price and after reaching the lowest level since November 21st at 1.2750. In the short term, the EUR/USD is moving slightly bearish according to the FXstreet.com Forex Studies. Indicators such as MACD, CCI and Momentum are bearish while the Stochastic is pointing bullish in the 1-hour chart.
The pair will face next support at 1.2730 (low Nov.19) followed by 1.2685 (weekly cloud base) and then 1.2680 (61.8% of 1.2042-1.3711). On the upside, a breakout of 1.2922 (MA10d) would then target 1.3050 (high Mar.25) and finally 1.3107 (high Mar.15).
On a wider timeframe, Kathy Lien comments that if "Thursday's economic reports show improvement in the German economy, the EUR/USD could rebound and aim for a retest of 1.29. However if the data turns out to be weak, then it could be just the catalyst that the EUR/USD needs for a move down to 1.26. Without a catalyst, it may be difficult for the currency pair to extend to that level."
Societe Generale senior analyst Sebastien Galy states that the EUR/USD is open to a move to the next level in sight at 1.2600. He believes that it suggests a strategy of selling on short covering to target the new lower range with a bottom at 1.26. “As a reminder our year end forecast goes into the 1.20s. Models have worked surprisingly well for EUR/USD, the last short covering came close to 1.31 given by the 80 percent quantile model, though our traders nailed it perfectly with a call for 1.3050.”
The Day ahead:
Among the great Cypriot banks opening, there are several economic data that investors must take in count. Germany will publish its retail sales and unemployment data and the United States will release the last revision of the Q4 GDP. Another reports to pay attention are Canadian GDP and the Chicago Purchasing Managers' Index.
- German Unemployment Change
- German Retail Sales
- US Gross Domestic Product annualized
- Chicago Purchasing Managers' Index