EUR/USD (a 4-hour chart)
After the European Commission and the ECB has been assured that the EU rules on deposit insurance do not violate the proposal to tax banks in Cyprus, the British pound and the Euro managed to recover some of their lost positions against the U.S. dollar.
According to Carl Forcheski from Societe Generale this news caused some short positions closing on the euro in Europe. According to him the news of Cyprus has a quite profound effect on the market and all the news that will be able to calm investors will have a positive impact on the pair.
The euro fell after the news of Cyprus at the weekend. Having learned that Cyprus is going within the contract for assistance from international lenders to enter a one-off tax on bank deposits, investors have begun to invest in the U.S. dollar.
Over the weekend, the International Monetary Fund and the euro zone leaders agreed to provide Cyprus a loan of 12.9 billion dollars, or 10 billion euros. In return Cyprus should pay for their help and tax all bank deposits. This is an unprecedented step.
Meanwhile, there are also fears that the euro zone investors will panic and begin withdrawing capital from the region. This fact increases the likelihood of regional credit crisis, which call into question the creditworthiness of weaker lenders.
We should not write off and Italy where a new parliament is being formed
Analysts believe that Cyprus is against the deposits holders and Italian elections will keep the pressure on the euro.