EUR/USD March 28 – Drops to Four-Month Lows on Cyprus,

EUR/USD  continues to struggle, as the pair was trading in the mid-1.27 range in  Thursday’s European session, its lowest level since November 2012.  All eyes are on Cyprus this morning as the country reopens its banks for the first time in almost two weeks.  Fearing a bank run, the government has imposed strict capital controls.  The political paralysis in Italy shows no signs of letting up, as coalition negotiations  ended in failure on Wednesday. In economic news, German data was a mix. Retail Sales beat the estimate, but Unemployment Change was dismal. In the US, this week’s numbers have not looked sharp, and the market will be hoping for better news from today’s highlight, which is  Unemployment Claims.

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• Asian session: Euro/dollar dipped below the 1.28 line and consolidated at 1.2793. The pair has  moved  lower in the European session.
• Current range: 1.2746 to 1.2805.

Further levels in both directions:  

• Below: 1.2746, 1.27, 1.2660 and 1.2587.
• Above:   1.2805, 1.2880, 1.2960, 1.3000, 1.3100, 1.3130 and 1.3170.
• 1.2746 is a weak support level. The round number of 1.27 is stronger.
• 1.2805 is providing resistance as the pair loses ground.

Cyprus bailout, Italian political  crisis weighing on markets- click on the graph to enlarge.

EUR/USD Fundamentals

• 7:00 German Retail Sales. Exp. -0.5%. Actual 0.4%
• 8:55  German Unemployment Change. Exp. -2K. Actual 13K
• 9:00  Eurozone M3 Money Supply. Exp. 3.2%. Actual 3.1%
• 9:00 Eurozone Private Loans. Exp. -0.7%. Actual -0.9%
• 9:10 Eurozone Retail PMI.  Actual 43.7 points
• 12:30 US Unemployment Claims. Exp. 340K. See how to trade this event with EUR/USD
• 12:30 US Final GDP. Exp. 0.5%
• 12:30 US Final GDP Price Index. Exp. 0.9%
• 13:45 US Chicago PMI. Exp. 56.5 points
• 14:30 US Natural Gas Storage. Exp. -85B

For more events and lines, see the Euro to dollar forecast

EUR/USD Sentiment

• Markets Nervously Monitor Cyprus: Despite the fact that a deal regarding Cyprus was announced on Monday, the lack of details and implications has left the markets jittery. The deal has not brought calm to the small Eurozone member, which has been at the center of a financial crisis over a EUR10 billion bailout. The country’s  banks are to reopen on Thursday, after being tightly shut for almost two weeks. Fearing a bank run, the government has imposed strict controls, including  limiting withdrawals to 300 euros a day, and a ban on cashing checks. The size of the haircut imposed on  accounts of over 100,000 euros  is still unknown, and there  are rumors that large depositors could lose up to 40% of their  savings. The euro has taken  it on  the chin  this week, dropping over two cents against the dollar.
• Ill-timed comments by Eurogroup head: As if the crisis in Cyprus wasn’t causing enough of a headache, the head of the Eurogroup, Dutch finance minister Jeroen Dijsselbloem, practically explained to Reuters and the Financial Times that the Cypriot model could be copied. He later backtracked on these comments, but the damage is already done: holders of large accounts in the euro-zone might feel less confident about the safety of their bank deposits. This damage to confidence has also contributed to the euro’s slump.
• Italian Political Crisis Continues: The markets have been busy with the Cyprus bailout fiasco for the past two weeks, but the crisis in Italy hasn’t magically disappeared, and help does not seem on the way. Coalition talks have not made progress, as the anti-establishment 5-Star Movement has rejected overtures from center-left leader Pier Luigi Bersani. New elections may be the only solution for the Eurozone’s third largest economy. Analysts have noted that Greece also was forced to call new elections, and such a move will certainly not increase investor confidence in the Eurozone.
• Which way Germany?: Mario Draghi is exuding confidence that the Eurozone economy will improve later in 2013, but that certainly won’t happen if the German economy doesn’t lead the way. However, German data has been a mix recently, and this was underscored in Thursday’s releases. Retail Sales rose 0.5%, blowing past the estimate of a 0.4% decline. However, Unemployment Change hit a five-month high, jumping to 13 thousand. This was a major disappointment, as the markets had anticipated a respectable drop of 2 thousand.
• US housing data disappoints: There has been a lot of talk of the US recovery gaining traction, but this week has been a bust, as economic releases point to continued weakness in housing, consumer confidence and manufacturing.  The markets  had  counted on stronger housing  numbers, but this did not materialize. New Home Sales fell  sharply  from 437  thousand to 411 thousand, well below expectations. Pending Home Sales, also looked weak, declining 0.4%. The forecast stood at  -0.3%. The housing market  is  a critical sector of the  US economy, and  there  will have to  be significant improvement in this  sector if the recovery is to take root.