by Cliff Wachtel, Global Markets

Cyprosis:  Deterioration of Cyprus caused by hardening of cash arteries that supply it, linked to political sensitivity and irritation in Germany, and side affects related to treatment regime of enlarged banking sector infected with cash from tax cheats.

Here’s a quick review of the week’s likely market movers for the pair. It’s reasonable to expect more of the same tight range bound trade this week in the 1.289 – 1.299 area, given the following:

1. The light calendar
2. End of week Good Friday liquidity drain
3. Continued tight range bound trade and lack of direction on the weekly chart (below)

However there are a number of very potent market movers to watch out for this week. Here’s a quick review of them. For further details see our weekly preview of top market movers for the coming week here.

1. Cyprus Bailout: Anticipation and Reaction To It: Neutral To Positive for the EURUSD

While we should have a picture of the basic terms early in the week, the full picture may take longer to emerge. Despite the dramatic headlines, market reaction was muted last week, suggesting a blasé attitude after having endured endless last minute deals already. That same attitude is likely to limit the relief rally if a deal is reached, just as much as it contained the pullback in risk appetite last week

See here for further details on how the latest outbreak of “Cyprosis” did and didn’t change the EU situation.

2. Italian Coalition Formation: Bullish for the EURUSD if it looks stable, Bearish if not

Center left leader Bersani will attempt to form a coalition. Failure risks a care-taker technocrat imposed by the President, which likely means another election in the coming months and more uncertainty and lack of leadership that will not inspire market confidence.

3. Italian 10 Year Bond Auction: Bearish if EU uses it as a warning

Bond markets forced out Berlusconi, so it’s possible that they’ll be used again to remind Italian voters to cooperate and support a candidate that can make Brussels smile rather than laugh.

4-9. Calendar Events Worth Watching

It’s a typically light end of month docket this week, but not without a few potentially market moving events for the EURUSD. These include

• Tuesday: US durable goods, CB consumer confidence, new home sales
• Wednesday: US pending home sales, Italy 10 year bond auction (see above for details)
• Thursday: US weekly new jobless claims, Chicago PMI

Note also:

• Good Friday should drain liquidity in Western markets Thursday and Friday, suggesting quiet range bound trading, which is also the likely result per the weekly chart below. However, these low liquidity days are potentially extra volatile if there is any major surprise.
• Some very big EUR depositors in Cyprus banks learned a painful lesson last week about having too much in one currency in one domicile. Those exposed to the other GIIPS nations no doubt are taking note. As in prior weeks,  Japan prepares to devalue the Yen, and the US is actively turning out $85 bln per month in new dollars. See here or here for details on the latest guide to safer, simpler ways to diversify your assets and income stream by currency exposure.

10. Technical Picture: Neutral This Week, Longer Term Remains Bearish

Note the EURUSD weekly chart below.

Click to enlarge

The chart shows a trading range lacking momentum in the near term:

• Price itself has been in a tight range for the past two weeks, and remains within the neutral zone of the double Bollinger bands, suggesting no real direction. See here for how to interpret double Bollinger bands.
• The weekly 20 (yellow) 50 (red) and 200 (violet) EMAs are flat

Longer term the downtrend is in full swing. Nothing in the EU’s fundamentals or recent events contradicts that.

DISCLOSURE /DISCLAIMER: THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY, RESPONSIBILITY FOR ALL TRADING OR INVESTING DECISIONS LIES SOLELY WITH THE READER.

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