IMF Warns of More Support for Cyprus Ahead of EU Meeting

IMF Warns of More Support for Cyprus Ahead of EU Meeting

The Euro climbed to an overnight high of 1.2877 as European policy makers talked down the risk of a euro-area breakup, and the single currency may continue to consolidate ahead of the EU meeting on May 22 as the group continues to push for greater fiscal integration.

However, as the governments operating under the single currency scale back their push for austerity, Bundesbank President Jens Weidmann argued France should take additional steps to balance its budget deficit, and the group of European officials struggle to meet on common ground once again as the region remains mired in a prolonged recession.

Indeed, the International Monetary Fund(IMF) warned that that the risks surrounding the Cypriot bailout program is ‘unusually high’ as the periphery country struggles to return to growth, and warned that ‘additional financing measures may be needed to preserve debt sustainability’ as the EU maintains a reactionary approach in addressing the risks surrounding the region.

In turn, the European Central Bank (ECB) may come under increased pressure to further embark on its easing cycle, and it seems as though the Governing Council will introduce more non-standard measures while implementing a negative-interest rate policy (NIRP) as the economic downturn continues to threaten price stability.

As we continue to watch the head-and-shoulders in the EURUSD take shape, the pair looks poised to make a run at the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50, and we may see the EU meeting in Brussels fail to prop up the single currency should the group make another attempt to buy more time.