The euro plummeted against every major counterparts as soon as markets opened on Monday, the first being in Asia to react to the negative news out of the euro zone over the weekend, which reignited fears of the debt crisis in the area.
Reports of the terms of the Eurogroup rescue deal for Cyprus, the fourth EU member to require such financial assistance in order to save its banking sector, shocked investors. This was the first time in Euro zone history that depositors have ever been required to take a loss on their savings. In return for a 10 billion Euro aid package to Cyprus, private depositors in the country’s banks will receive a “haircut” on their bank deposits.
This scared investors that this type of measure could be used in other countries that require a bailout, and could cause a bank run, and a domino-effect.
As a result the euro was sold off, causing it to fall the most in 14 months against the dollar in early Monday trading hours, falling below $1.3000 where it was on Friday to $1.2882, dropping 1.4 percent from Friday’s close.
Once the US session came, risk sentiment improved compared to the European and Asian session earlier in the day. The Dow Jones Industrial Average erased a 109 point decline and is now slightly higher on the day. There was a US dollar rally versus the yen, leading USDJPY up 1.34 percent to a session high of 95.57 from an intra-day low of 94.30 which was hit in Asian trading, down from Friday’s close of 95.25 yen. The opening gap has now been filled. The gaps are also closed in AUDJPY and CADJPY.
EURJPY has just nudged to a US session high at 123.92 from 121.62 hit in Asia.
EURUSD managed to recover some of the day’s losses and attempted to fill the opening gap but found resistance at a high of $1.2994.
EURCHF dipped to 1.2167, the lowest since February 27, before bouncing to 1.2260 and closing the opening gap from the start of Monday trading in Asia.