The EUR/USD pair had a positive session on Thursday, bouncing off of the 1.2750 level and going above the 1.28 level later in the day. This would've been a reaction to the fact that Cypriot banks managed to open during the session without much in the way of a bank run. Many of the traders that I know had expressed concerns about bank runs, and even more so violence in the streets of Nicosia. Since we did not get that, it appears that the situation in Cyprus will more than likely go to the back burner for the short term.
Of course, I still believe that the downtrend in the Euro will continue. After all, the structural problems have not been addressed, and Cyprus was just the beginning of what we could see in peripheral banks. In the next couple of months, I expect to see the markets react nervously to this recent episode as people will also become concerned about Italy, Spain, and Ireland, everybody's worried about Greece, so it's not even worth mentioning these days.
A dangerous new precedence may have just been established.
A dangerous new president could have just been established in Nicosia. After all, depositors are now being asked to bailout the bank they belong to. Granted, it was only the larger depositors as opposed to all of them, but that was the original plan that people will remember. With that being the case, Europeans simply cannot feel good about having their money in a Portuguese bank, as they could be asked to bail that bank out in case of an implosion.
We could see a real flight of capital from the convent, and as a result I still think that the ultra-wealthy will feel much better run having their money in New York banks than they will in Rome, Paris, or even Frankfurt. With that being the case, I fully expect the downtrend to continue over the long-term, but a bounce is probably due at this point. I think selling rallies will be the way to go in this marketplace, and I fully expect 1.30 to be extremely resistive now.
