Forex: EUR/USD, 1.2965/75 intra-day supply protects upside (Barcelona) - The Euro was able to muster some 30+ pips in the past hour following news that Cyprus has been granted more flexibility on small - below 100k - bank deposits levy, Reuters reported, citing the Greek finance ministry.

The pair, which initially flew from 1.2925 NY session low to test a supply-sensitive area between 1.2965/75, with the penetration into the level only 2 pips, has now retreated to find stability at 1.2950.

The rejection overhead, barely entering the supply zone, suggests some imbalance between buyers and sellers remains.

Last Asian market open, the main catalyst producing the 160+ pips down-gap was concerns on both small depositors distrust spreading across Europe - capital flights - and failure to ratify the bailout deal by the Cyprus government, scheduled for Tuesday. As things stand now, looks like none of the two Euro-negative factors would get any worse as small savers in Cyprus appear to be safeguarded, while the Parliament, if levy only introduced on +100k accounts, should produce a positive outcome.

One may think that after the dust has somehow settled, the Euro may have recovered further from its enormous gap. But the reality is that it closes the NY session barely above 1.2950, still more than 100 pips below last Friday's close.

As Fan Yang, chief analyst at FXtimes notes: "While one scenario is that if the market finds support at 1.2860-1.2885, it can come up to “close the gap” so to speak, which would test the resolve of the bearish trend, holding under 1.30 would be a bearish confirmation, with further pressure toward the next support levels."

We have been pointing in recent days that the area of demand 1.2950/1.2875 has been gradually absorbed by sellers, which were able to deep both feet into it until lat European session bounce off 1.2875 for some succulent risk reward plays. However, as Fan reports, the fact that EUR/USD fails to hold above 1.30 at the NY close, should be a red flag not to ignore.

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