How to trade Euro on the Cyprus bailout?

European Central Bank Cyprus bailoutThe most prominent online trading news for this week is the unfolding situation in Cyprus. We have seen the Euro lose more value as the EU continues to pressure Cyprus to come to a consensus regarding the 5.8 billion Euros needed to save the ailing country from a disorderly default and a messy exit from the European Union.

Although this 5.8 billion was initially to come from the mandatory levy on all citizens’ bank holdings, severe protests and mass withdrawals of capital have made this move, at least as it currently stands, all but impossible.

The Cypriot government has hinted that it may waive the levy requirements for those who hold less than 20,000 Euros in the bank, but there is still widespread opposition.

The Russian government has called the European Union’s move irresponsible and dangerous to the stability of the country while the United Kingdom has guaranteed to protect the assets of its citizens and businesses should this tax be imposed.

While these domestic conditions are causing many forex traders to be wary regarding the long-term strength of the Euro, the main concern is the psychological impact that these conditions may cause. In fact, a former ECB member has warned about the possible “contagion” of a panic withdrawal spreading within Cyprus.

Additionally, this move also raises concerns regarding the drastic devaluation of the Euro if a larger economy such as Spain or Italy had to impose the same measures.

These conditions have continued to cause online forex traders to take an increasingly bearish approach to the medium-term value of the Euro. Another key question is whether the ECB may push European-wide interest rates to another all-time low in efforts to stave off a protracted regional recession.

In terms of forex trading, all eyes will continue to focus on the situation in Cyprus for the remaider of the week.

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