US dollar stays firm over Cyprus banking uncertainty

Economic news (20 March 2013) – The dollar edged up against most of its major counterparts in early Asian trading on Wednesday as it extended its gains from yesterday, ahead of the end of the Fed’s policy meeting later today.

The Cypriot financial turmoil continues to affect the markets as the country’s government rejected the controversial bailout proposal, which dragged the euro and European shares down, making investors turn to the safe-haven greenback.

Better-than-forecasted housing data released by the US Department of Commerce also boosted demand for the dollar.

At the time of writing, the EUR/USD was trading at 1.2890, down 0.3%.

The dollar has been riding on mostly positive chart ‘’waves’’ recently, supported by strong US economic data and financial turbulence surrounding most of its rival currencies.

The latest portion of this data showed a 0.8% increase in Housing starts (917,000 units) and a 4.6% increase in Building permits (946,000 units) in February.

The dollar also gained against the euro due to the controversial tax on deposits in Cypriot banks, which was part of a rescue plan proposed by the EU and the IMF. Fears among market makers for imminent withdrawals of bank deposits in other indebted Eurozone countries have also increased.

Looking further in the day, the end of the two-day Fed meeting will be in the focus of investors. Despite being widely expected for the Fed to continue with its $85 billion-a-month asset-buying program, markets will be very sensitive to any hint of reducing the speed in the program. The Fed is also due to announce the key interest rate, and also give its regular economic forecast.



Technical analysis


At yesterday’s session the euro was moving in the 1.2970-1.2845 range. This morning the currency pair was trading at 1.2855-1.2875.

Should the euro overcome the resistance at 1.2875-1.2905, its aim will be reaching and testing the 1.2875-1.2905 zone. If successful, the upward trend will continue to 1.2990-1.3005. If the euro falls bellow the support zone of 1.2865-1.2840, the next support is expected to be at 1.2815-1.2800. In case of a breakdown, the downward trend will continue to 1.2765-1.2745.




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