EUR/USD remains under pressure in Friday trading, as the Cyprus bailout crisis deepens. Following Cyprus’ rejection of a bailout agreement, the ECB announced on Thursday that it would stop providing financial support to the country’s banks next week, unless a new agreement on a rescue package was reached. There were plenty of releases for the markets to digest on Thursday. In the Eurozone, PMI numbers out of Germany, France and the Eurozone all fell below expectations. The news was better out of the US, as Unemployment Claims and the Philly Fed Manufacturing Index looked sharp. Existing Home Sales improved, but still missed the market estimate. Friday is much quieter, with just two releases, both out of the Eurozone. German Ifo Business Climate was a disappointment, falling below expectations.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
EUR/USD Technical
- Asian session: Euro/dollar was quiet, as the pair touched a low of 1.2889 and consolidated at 1.2894. In the European session, the pair has crossed the 1.29 line.
- Current range: 1.2880 to 1.2960.
Further levels in both directions: 
- Below: 1.2880, 1.2805, 1.2746, 1.27, 1.2660 and 1.2587.
- Above: 1.2960, 1.3000, 1.3100, 1.3130, 1.3170, 1.3255, 1.3290, 1.3350, 1.34, 1.3486 and 1.3588.
- 1.2960 is the next line of resistance. This is followed by the round number of 1.30.
- 1.2880 is providing weak support. 1.2805 is stronger.
Euro/dollar under pressure as ECB threatens to cut off Cyprus- click on the graph to enlarge.
EUR/USD Fundamentals
- 9:00 German Ifo Business Climate. Exp. 107.8 points. Actual 106.7 points
- 14:00 Belgium NBB Business Climate. Exp. -10.3 points
For more events and lines, see the Euro to dollar forecast
EUR/USD Sentiment
- ECB lays down ultimatum for Cyprus: The crisis continues in Cyprus after it rejected a 10 billion euro bailout package from the EU and IMF. Under the agreement, all bank deposits would be taxed, between 6-10%, depending on the size of the bank deposit. Cypriots were outraged, and on Tuesday, parliament voted overwhelmingly against the bailout deal, despite the government’s pleas that rejecting the agreement could lead to a bank collapse. The ECB fired back, and has threatened to stop providing emergency liquidity to Cypriot banks as of Monday, unless an agreement is reached for a new rescue package. Without these funds, Cyprus could experience a financial meltdown. Although Cyprus is one of the smallest members of the Eurozone, there is a fear that the bank run which occurred in Cyprus could spread to other members, hence the tough line being taken by the ECB.
- Euro PMIs disappoint: Thursday’s PMI data out of the Eurozone was a major disappointment. In France, Manufacturing PMI came in at 43.9 points and Services PMI at 41.9, both of which were below expectations. It was the same story with Eurozone PMIs, as the Manufacturing PMI came in at 46.6 points and Services PMI at 46.5. German Manufacturing PMI, a key indicator, dropped below the 50-point level to 48.9 points, indicating contraction. German Services PMI managed to stay above the 50-point threshold at 51.6 points, but this was well below the estimate of 54.9 points. These weak numbers point to continued stagnation in the Eurozone, but what is especially worrying is the German data, which points to trouble in the Eurozone’s largest economy. The euro took a hit after the releases and dipped below the 1.29 line, but has partially recovered from these losses and is back above 1.29.
- Federal Reserve stands pat: Bernard Bernanke had no tricks up his sleeve as the US Federal Reserve maintained interest rates and the current round of asset purchases. The benchmark interest rate remains at 0%-0.25%, and the Fed will continue to purchase $85 billion in assets each month. There had been speculation that the Fed might modify its monetary policy as the economy as shown signs of improvement and unemployment has dipped lower. However, Bernanke stated that the labor market was still weak and also noted concern about recent tax increases and federal spending cuts.
- US posts solid numbers: The markets were busy digesting Thursday’s key US releases,and the news was mostly positive. Unemployment Claims were up slightly to 336 thousand, but beat the estimate of 343 thousand. This marked the fourth straight week that the key employment indicator has been below expectations. There was good news as well from the manufacturing sector, as the Philly Fed Manufacturing Index climbed to 2.0 points, beating the estimate of -1.6 points. Existing Home Sales rose slightly from the February reading to 4.98 million. but fell short of the estimate of 5.02 million. Overall, the numbers were solid and reinforce the sentiment that the US recovery is deepening.
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