Forex Flash: Cypriot deal should support the Euro near term - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ believes that the Cyprus agreement should help to support the euro in the near-term helping to prevent a more sustained EUR/USD break below the 1.3000-level.

He notes that according to the BTMU in-house nearterm valuation model, uncertainty in Cyprus resulted in EUR/USD becoming modestly undervalued in the near term. He sees that an easing of that uncertainty in the coming months may result in the pair drifting higher towards our three month forecast of 1.3200. Further, the latest IMM report confirmed that recent developments in Cyprus have resulted in a build up in speculative short euro positions which have reached their highest level since late last year.

He writes, “We remain confident that the ECB’s OMT programme will help to dampen any broader negative fallout out in the near-term from the hit to large deposit holders in Cyprus and junior and senior bank bond holders. However, the still weak economic growth outlook in the euro-zone will help to dampen upside potential in the near-term. The German IFO report released on Friday also came in weaker than expected following the disappointing euro-zone PMI surveys for March. The economic recession in the euro-zone may continue to prove more prolonged than expected leaving the door open for further ECB easing.”