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Euro Holds Range on Cyprus Bailout Talk- Pound to Consolidate

Euro Holds Range on Cyprus Bailout Talk- Pound to Consolidate

David Song, Strategist

Talking Points

  • Euro: Cyprus Remains in Talks- Russia Waiting on Troika
  • British Pound: To Face Broad Range Ahead of BoE Meeting
  • U.S. Dollar: Index Hits Fresh Weekly Low- Consolidation Ahead

Euro: Cyprus Remains in Talks- Russia Waiting on Troika

The Euro maintained the range-bound price action from earlier this week amid reports that Cyprus remains in talks with Russia to raise the EUR 5.8B need in securing the EUR 10.0B bailout, but we may see the EU make an attempt to buy more time should the periphery country fail to meet the deadline set by the European Central Bank (ECB).

As the ECB pledges to ‘maintain the current level of Emergency Liquidity Assistance, ELA, until Monday, 25 March 2013’ for Cyprus, the EU said it is reviewing the ‘investment solidarity fund’ proposed by the Cypriot government, but we may see the group struggle to meet on common ground as German Chancellor Angela Merkel warns the periphery country of ‘exhausting the patience of Eurozone partners.’

At the same time, Russian Finance Minister Anton Siluanov said the country will wait to hear from the Troika before it decides to participate in the rescue, and the heightening threat of a bank run in Cyprus may produce further headwinds for the region as European policy makers struggle to stem the renewed risk for contagion.

Nevertheless, as the EU moves ‘into top gear’ to rescue Cyprus, positive headlines may prop up the single currency going into the end of the week, but we may see a major gap at the Sunday open should the periphery country fail to address the banking crisis.

In turn, the EURUSD should continue to track sideways until we get a more conclusive outcome for Cyprus, but the slowing push for austerity along with the deepening recession in the euro-area may persistently drag on the exchange rate as the fundamental outlook for the region remains clouded with high uncertainty.

British Pound: To Face Broad Range Ahead of BoE Meeting

The British Pound continued to gain ground on Friday, with the GBPUSD climbing to a fresh weekly high of 1.5212, and the sterling may appreciate further in the week ahead as the economic docket is expected to highlight an improved outlook for British economy.

As a growing number of reports are expected to show a stabilizing housing market in the U.K., increased loans paired with higher home prices may push the sterling higher during the final days of March.

However, should former support - the 50.0% Fibonacci retracement from the 2009 low to high around 1.5260 – act as resistance, we may the GBPUSD face range-bound prices ahead of the next Bank of England (BoE) interest rate decision on April 4 as market participants weigh the outlook for monetary policy.

U.S. Dollar: Index Hits Fresh Weekly Low- Consolidation Ahead

The greenback remains under pressure on Friday, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) tagging a fresh weekly low of 10,437, but the reserve currency may consolidate going into the end of the week as Cyprus remains in focus.

As the economic docket remains bare for the North American trade, broader risk trends should dictate price action in the foreign exchange market, but we may see currency volatility taper off ahead of the weekend as market participation wanes.

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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