– EURUSD waiting for news from Cyprus
EURUSD has been trading in a familiar 1.2880-1.2950 range as the situation in Cyprus remains clouded in uncertainty. The latest reports suggest that the proposed solutions are moving in the direction of a good bank, bad bank proposal, while the Cyprus central bank governor said the new bill guarantees deposits under EUR 100k. Media reports suggest that a plan could be voted on today, but with the 61-page bill to be discussed in parliament and with a Monday deadline having been stuck by the ECB, a vote may not take place until the weekend. The deadline to the discusions was put in place on Thursday when the ECB announced that the ELA funding will remain in place until Monday 25 March and a EU/IMF plan would need to be in place for the ELA to continue after that date. We expect a constructive solution to emerge in the coming days and EURUSD is likely to remain stable on Friday. If anything, there is risk of a squeeze of short EUR positions ahead of the weekend. On Friday the German IFO business confidence survey pulled back slightly and raises the possibility of an ECB refi rate cut. However, we do not think that this, or events in Cyprus, are a game-changer for the EUR over the medium-term (for more details see “Cyprus and the EUR: Where Has the Contagion Gone?” in today’s edition of the FX Weekly). Thus, we maintain the bias to buy EURUSD on pullbacks as the pair appears oversold according to metrics such as BNP Paribas STEER and Italian/Spain yield spreads with Germany. We see dips to the 1.2806 technical support as a potential buying opportunity.
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BNP Paribas