Cyprus situation must find resolution this weekend or Monday – will the market breathe a sigh of relief or continue to fret the precedence set by this situation that EU officialdom so vehemently denies has in fact been set?
With Russia turning down appeals for help from Cyprus officials, the latest plan circulating is one in which Cyprus is seeking to differentiate amongst banks and depositors a bit more, insuring smaller deposits up to EU-norm of 100k, but then going after a far heftier 40% of large depositors’ funds in the two largest Cyprus banks that are the bulk of the problem. There was some talk of nationalizing pension funds to fund the deal as well – but Merkel has reportedly been out this morning saying that this is unacceptable.
Again – everything is fluid here, but the only way out from here as far as I can tell is for Cyprus to more or less cave in under the pressure from the Troika and deal with the consequences that will come, which could be a collapse in the nation’s economic model as the expats will want to take their money elsewhere. I suspect there will be a cheap apartment or two for sale in the various expat communities on Cyprus in the coming months…
Tidbits
Yesterday was a risk off day in asset markets and an interesting test for the market – as we see the JPY heading stronger (remember in this piece (http://www.tradingfloor.com/posts/abenomics-just-your-garden-variety-carry-trade-1827830742) that I argued that the JPY may be the new risk on/risk off instrument in currency markets for now). Japan’s FinMIn Aso was out saying that achieving the inflation target would take a long time.
The EURUSD continues to bid its time in the in nervous 1.2850 to 1.3000 range as it has effectively failed to do anything since it gapped lower in a weekend opening. Today’s IFO was mildly disappointing, but it was the first decline since last October.
AUDUSD no longer behaves like the AUDUSD of old, as we have new multi-week highs here despite weakness in the major mining company shares and commodities have only perked up in places. The interest spread story has not supported the last figure or more of the move higher and I continue to look in in a bit of disbelief, but strength is strength and we need a plunge well back through 1.0400 before we can find any bearish hook within the range. Remember the huge 1.0600 top and realized that we are nudging up against a descending trend-line ahead of that level.
GBPUSD – 1.5200 is under pressure – if USD remains on the defensive 1.5216 gives way, let’s see if we get follow through for another wave higher – still like finding levels to sell but awaiting a pattern or hook.
EURSEK broke above 8.40 for the first time in March – interesting tech development.
Looking ahead
All is eerily quiet on the economic calendar after this morning’s numbers out of Europe, as we await resolution on Cyprus and how the final deal affects sentiment and the risk of flows. Remember that the novel aspect that Cyprus has introduced is a different angle on the risk that capital flows may exit Europe – the general fear that EU officialdom is not to be trusted and may take extreme measures down the road to recapitalize the banks that so desperately need recapitalization (especially relative to the US, where this process is complete). This lies as an additional layer atop the general existential uncertainty of whether we eventually face a Euro breakup/peripheral exit scenario. Any relief pop in the Euro, if one materializes, in other words, may be rather brief. 1.3000 and 1.2850 are the short term triggers, with gap risk once again if the Cyprus situation is unresolved heading into the weekend.
Economic Data Highlights
- France Mar. Production Outlook Indicator out at -42 vs. -26 expected and -37 in Feb.
- Germany Mar. IFO out at 106.7 vs. 107.8 expected and 107.4 in Feb.
- Norway Mar. Unemployment Rate out at 2.7% vs. 2.6% expected and 2.7% in Feb.