Sunday, March 24, 2013

What will Cyprus do? All eyes on the Euro this week.

Maybe not all eyes, but mine certainly will be. Tomorrow (Monday) is D-Day for Cyprus, without a deal the ECB will cut off emergency funding. Can Cyprus come to a decision? Is the Euro currency able to sustain in the small island of Cyprus, with its little over 1.1 million residents? It may not seem like a big deal compared to the entire Euro zone, but it can have a domino effect, and other countries may soon decide to leave the Euro currency zone as well. So what does this mean for the Euro currency? From a technical standpoint it seems that the Euro is having a hard time breaking the 1.30 barrier for quite some time. This resistance level (ceiling) hasn't really been broken last week (see chart below) which implies to me that there's a lot of caution in the markets.
Click on the image for a larger version
The next thing I noticed is the open interest (options) for April 13 for the EUR/USD, as shown below. It shows the number of puts and the number of call options. As you can see there are way more put options for the 1260 ($1.26) range, over 6000 contracts! It's going to get interesting this upcoming trading week.

Open interest for the EUR/USD for April 13. Click on the image for a larger version
Like I said before, I'll be keeping a close eye on this pair. I will not be trading the pair live on Stock twits this week, but will announce entry and exit positions on twitter.
Personally, I have a very bearish outlook. The situation in Cyprus is alarming, and shouldn't have come this far in the first place. We'll see what happens - any sustainable trading above 1.30 implies to me that a recovery is in sight, anything below that (highly expected) implies a trading range of 1.26 and below in the short term. Forex markets will open in about 8 hours after this time of writing, stay put :)

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