Cyprus Debacle Shakes Investor Faith In Euro(zone)
???? Fundamentals
The Euro currency suffered losses yesterday, after the EU unveiled a plan to bail out the economy of Cyprus. The plan is highly controversial, as it requires the government of the island nation to raise 5.8 billion Euros from bank deposits in order to secure the loans. This requirement did not sit well with Cypriots and spurred fears of bank runs.
To avoid bank runs, the government strong-armed its citizens by freezing bank transfers. This, however, did little to soften the impact the move had on the Euro. This also has citizens of nations like Greece, Spain, Italy, Portugal and Ireland, which have their own issues, concerned that their government could come in an essentially “steal” some of their life savings and call it a “tax.”
The Cyprus debacle could continue to weigh on the Euro, as some investors may be concerned that the pan-European union is ill-equipped to deal with a crisis. That the EU is forcing the Cypriot government to impose a “tax” like this is eerily similar to the Greek debacle, where the EU forced the government into default by making bond write-downs part of the concessions.
Many have argued that this move set off the chain reaction that resulted in investors pushing Ireland and Portugal into bailouts that those governments and peoples may not have necessarily wanted at the time. The seemingly poor leadership and strong-arm tactics from the EU could shake investor confidence in the Euro.
???? Technical Notes
Turning to the chart, we see the June Euro Currency contract trading near the 1.30 level. The currency has been consolidating near this level since the beginning of March. Given the preceding downtrend, the bias seems to be to toward the downside in the event of a breakout. In the event of a downside breakout, the Euro could head toward minor support near 1.27. More significant support comes in near the 1.20 level.
The downward crossover of the 20-day moving average with both the 50- and 100-day averages could be seen as a negative sign, medium term. The RSI has recovered from oversold levels, even as the market has moved sideways to lower in recent sessions. This divergence between price and RSI can likely be seen as slightly positive for the Euro.
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