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Forex Flash: Unless bailout ratified, Cyrpus faces risk of EUR exit - RBS

FXstreet.com (Barcelona) - The Cyprus bailout story may help keep the EUR in a recent downtrend, says Greg Gibbs, FX strategist for RBS. He says that "EUR remains essentially in a downtrend since its high on 1 Feb, it is now testing significant support around 1.288, and the lower end of a recent declining channel..."

Greg adds: "Perhaps the most negative aspect of the Cyprus development is the uncertainty over how long it takes for its parliament to agree on depositor haircuts. The longer it takes the longer the bad taste stays in the mouth of all involved."

"Most of the criticism of the plan relates to the haircut faced by smaller depositors, and this is likely to generate considerable disagreement and debate in parliament. The deal agreed over the weekend between the Cypriot government and the Eurogroup must be ratified by Cypriot parliament. Until it is, banks are likely to be shut in Cyprus to avoid a bigger bank run" he adds.

Greg says that unless the Cyprus government approves the deal, "it may not get a bailout and thus need to exit the EUR..."

Since the Cypriot government controls 28 of 56 seats, and with the risk of members of a junior member of the coalition government threatening a NO vote, "the government is hoping for the support from a small pro-European party" Greg adds.

Commodities Brief: Gold rallies above $1.6k on risk-off Cyprus news

News coming from the EU this weekend, set aside political uncertainty in Italy, have driven markets into another stage of risk-off mode, as new deal on Cyprus bail-out bites on bank depositors as a way to avoid default, which has sparkled a massive fly to USD safety, including US 10 year bonds. EUR/USD fell from 1.0375 to lowest in 3 months at 1.2887, Oil is last around $92 mark from previous $93.20, and Gold broke to fresh 3-week highs at $1608, just to give back almost all gains, last at $1595.
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