This is a continually evolving situation and for this reason we are surprised by the resilience of the EUR/USD because the stakes are high and the odds are stacked against Cyprus. Nonetheless Europe's currency along with its stocks and bonds are taking the developments in stride and we can't ignore that. Investors clearly feel that with the ECB holding their liquidity line hostage, Cyprus has no choice but to reach a deal by Tuesday. If they do, the EUR/USD will soar in relief and if they don't it could drop to fresh year to date lows. The next few hours is critical because if Parliament rejects the legislation once again, the government will have to go back to square one and time is running out. Along these lines, we expect rallies in the EUR/USD and other major currencies to remain limited until there is a resolution.
With no U.S. economic data on the calendar this morning, the focus is exclusively on Europe. Fed President Raskin spoke this morning and her comment that the central bank plans to keep interest rates low for a considerable period of time is consistent with her generally dovish bias.
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