The euro continues to be sedated around 1.2950 (Barcelona) - Since Cyprus’s bailout the single currency has been orbiting around 1.2950, shuffling higher and lower every now and then, but at the end of the day, EUR/USD has netted its movements around that level.

The main driver remains Cyprus, although uncertainties have been increasing as of late, as nobody seems keen like to openly anticipate any result from today’s parliamentary vote – if it ever happens. The centre of the current debate moved to the levy on smaller deposits, with Cypriot officials exposing different views in this regard: if sub €20K depositors are to be spared, then the levy on deposits bigger that €100K should be bigger - with Russia lifting an eyebrow in this case – otherwise the total amount of seized deposits would not be met. Other positions expose a lower levy for the smaller tier of deposits, currently at 6.75%. There was event market chat hovering amongst investors that the parliament would say ‘No’ to the rescue package. Negotiations are arduous and yet far from over, as so the final outcome.

… Murphy’s Law

The vast majority of market analysts and economic gurus are constantly repeating that an exit of Cyprus should not be a major issue, considering the size of its economy and thus its relevance for the euro bloc. However, the problem goes beyond: if Cyprus leaves the bloc, that could be the spark longed for by many anti-euro parties that recently arose in the periphery. Such developments could rapidly echo through the debt markets of Spain, Italy and Portugal, currently acting as barometers of the markets’ mood. Well, we only need a child’s imagination to foresee what would follow, but that catastrophic scenario is still far away from the present days, although as a famous law states: “If something can go wrong, it will”.

In the meantime and not far from Cyprus, Italy is living its own nightmare after the last inconclusive elections, as nothing has improved since then in the political arena. The lack of direction is exposed by technically a triple-draw between Bersani, Grillo and Berlusconi should further elections take place now. Where’s the technocrat Monti? Oh yes, in the fifth place, with only 6%of the vote against an average of 25% from the top three contenders.

However, first things first: Cyprus needs to solve this maze for the euro to have better prospects to face the upcoming PMI prints, which always represented a threat to any attempt to escalate to further resistance levels.

In the technical space, the pair is navigating within the down-channel set from 2013 highs and eroding the 200-day moving average at 1.2967
The already tested support remains in the region of 1.2880/85, where converge the 50% Fibonacci retracement of the July 2012 – February 2013 upside and December lows, ahead of 1.2680/1.2700 (November 2012 lows, 61.8% level and bottom of the channel).
Reinforcing the bearish sentiment, the daily RSI is just above the 40.0 level, indicative that the downleg would not be complete.