Cyprus Punches Above Its Weight, Catches the Euro’s Jaw

EURUSD Hourly 180313The foreign exchange market isn’t literally 24/7, 365 days a year. All centers observe the January 1 holiday, and when New York gratefully shuts down on Friday evenings, nothing can occur until our friends in New Zealand get going in the early afternoon on Sunday (for those of us in the eastern U.S.). Liquidity tends to be thin, however, until Tokyo and Hong Kong come in a few hours later. I do have a number of U.S.-based hedgie acquaintances who like to trade into the Far East, as they can take advantage of large moves in early trading and take profits as London opens, or at least hope to do so.

What we’re seeing this evening (again, EST) is a sharp reaction in EUR/USD to news that as part of the price for a bailout package from the European Union, depositors in Cypriot banks will have to pay a tax of 6.75 per cent on holdings up to EUR 100,000. This is the first time that those merely holding modest bank deposits, as opposed to shareholders and bond investors, have been required to take a haircut in return for aid, and while Cyprus is a minute part of the EU economy (if memory serves, 0.2%), and the aid package small (EUR 10 billion), the implications should the much larger Spain and/or Italy call for help are sobering for anyone maintaining deposits in those nations.

EURUSD Daily 180313On the daily chart (directly above) something around 1.32 looks as though it might provide resistance and a place to think about establishing a short. Since things are likely to be volatile at least until the Cypriots react – they may reject the proffered aid package, which would put us in uncharted territory, so to speak – keeping an eye on the hourly chart (located at the top) as well seems prudent, and in that time frame, something just below 1.30 seems set to offer resistance on a pullback. Even if EUR/USD looks horrendously oversold, I’d be inclined to avoid the long side for now.

Best of luck!

About the Author kevin


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