The EUR/USD pair originally gapped lower at the open on Monday, after the news broke that deposits in Cypriot banks would be used in order to pay back a bailout that the country needs. Needless to say, the fact that insured money is no longer insured caused quite a bit of controversy. In the last 24 hours, we have seen the EU and IMF demand quite a bit out of the tiny country, perhaps more than will be delivered.
In theory, this could bring on a bit of a bank run in not only Cyprus, but several of the peripheral countries as well. This is because several of the countries on the periphery in Europe have very similar problems, although not as grand. If confidence goes the way of the dinosaur in places like Spain and Italy, we would have very serious problems going forward. Bank runs are almost impossible to reverse, and the damage would be almost incalculable.
Going back and forth
Since the announcement, there has been so much in the way of outrage that the parties involved in the negotiations have backpedaled on a lot of the demand, and now we are still in a situation where nobody really knows what's about to happen. On top of that, the Cypriot president suggested that he did not have the votes in the Parliament in order to adopt this particular route.
If that's the case, it'll be interesting to see what comes of the crisis next. Regardless, traders do not like uncertainty, and there would not be much of a reason to keep money in Europe going forward if all of this goes through. Because of this, and be very interesting to see what comes of the next couple of days, and as a result this pair is going to be very dangerous to trade.
The 1.30 level offered quite a bit of resistance on the way back to close the gap that formed on Monday, and in fact we pulled back about 60 pips in the process. Because of this, I believe that the downside will continue to be pressured, and that we could see a slow grind lower over the next couple of days.
