FOREX-Euro pushes higher on news of rescue deal for Cyprus

Mon Mar 25, 2013 1:46am EDT

Related Topics

* Cyprus clinches last-ditch deal with international lenders

* Deal endorsed by euro zone finance ministers

* Euro may face short-term resistance near $1.3140 - analyst

By Masayuki Kitano

SINGAPORE, March 25 (Reuters) - The euro rose on Monday after Cyprus clinched a deal with international lenders for a 10 billion euro bailout aimed at saving the country from financial meltdown.

The single currency rose 0.4 percent to $1.3040, pulling away from a four-month low of $1.28435 set last Tuesday. Against the yen, the euro climbed 0.7 percent to 123.60 yen .

The deal for Cyprus, which was swiftly endorsed by euro zone finance ministers, includes plans to shut down the country's second largest bank in return for a 10 billion euro ($13 billion) bailout.

The plan involves winding down Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank".

Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalise the Bank of Cyprus.

The agreement came hours before a deadline to avert a collapse of the banking system in Cyprus. Until a deal was reached, there had been concerns that Cyprus might have been forced to exit the euro zone.

Analysts said the euro might rise to around $1.3100 to $1.3150 in the near term as investors pare back bearish bets versus the single currency.

However, they were sceptical that there would be a sustained rally in the euro, given concerns about the euro zone's economic outlook.

"People are focusing on European growth and the structural problems that are going to impede European growth," said Sim Moh Siong, FX strategist for Bank of Singapore.

"We're starting to see a greater contrast between U.S. growth and European growth. That contrast, I think, will continue to weigh on the medium-term outlook for the euro," he said, adding that the euro could face short-term resistance at levels around $1.3140.

Technical charts show several resistance levels for the euro in the $1.3130 to $1.3140 area including its 100-day moving average at about $1.3132 and the euro's March 8 intraday high of $1.3135.

"I have regarded the problems facing Cyprus as being only a short-term trading factor for the market," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.

"I am sticking to the view that the euro will eventually be dragged down due to its economic fundamentals," Karakama said.

The yen, which tends to rise in times of market stress, retreated broadly as the worries over Cyprus eased, with the dollar strengthening 0.4 percent to 94.82 yen.

Market expectations for the Bank of Japan to unveil aggressive monetary stimulus at its next scheduled policy meeting on April 3-4, the first under new BOJ Governor Haruhiko Kuroda, are seen likely to support the dollar against the yen in the near term.

Analysts say, however, that with expectations for drastic BOJ monetary easing already running high, the dollar could face a sell-on-fact type of reaction against the yen after next week's meeting.

With the yen pressured by the prospects for BOJ easing, the dollar hit a 3-1/2 year high of 96.71 yen on March 12, marking a gain of roughly 22 percent for the greenback compared with mid-November.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.