Euro Jumps Broadly On Cyprus Bailout Deal

Cyprus has finally agreed on a deal with its international lender on the EUR 10b bailout, which would avoid collapse of the banking system, sovereign default and exit from eurozone. Under the latest deal, the island country's second largest bank, Laiki, will be shut down and split. Deposits under EUR 100k in Laiki will be shifted to the Bank of Cyprus. Meanwhile, deposits above EUR 100k, which is not under EU guarantee, would be frozen and used to resolve debts. A loss of no more than 40% will be imposed in these larger deposits. Bank levies will not be imposed on any deposits in Cypriot banks.

Technically, the EUR/USD is back above 1.3 and will be taking on 1.3106 resistance, possibly today. We'll wait for further indication in underlying EUR strength to go long. These levels include , 1.3106 in EUR/USD, 126.03 in EUR/JPY, 0.8601 in EUR/GBP and 1.2622 in EUR/AUD. We'd prefer to see at least two of these levels broken before confirming strength. And comparing the strength of other major currencies, we'd prefer to long EUR/USD.

Latest CFTC data showed further deterioration in positions in Euro, Sterling and Canadian dollar on March 19 compared to the previous week. Sentiments on the Australian dollar seemed to have changed, and net longs jumped sharply. The euro net short rose again to -44.9k contracts, nearly double last week's -24.8k. Sterling short jumped again for the ninth week to -61.5k, comparing to last week's -49.8k. Yen net shorts retreated and dropped back to -80.0k, from -93.8k. Australian dollar net longs jumped sharply to 54.1k contracts, more than double the previous week's 23.3k, and compared to this year's 7.1k low. The AUD is now approximately half way below last year's high of 103.4k. Canadian dollar shorts also jumped for the ninth week to -65.3k, compared to last week's -53.3k.