Euro Gaps Lower On Cyprus Deposit Tax Chaos

The euro gapped sharply lower as the week opens with the news that a deposit tax is part of Cyprus bailout deal. Over the weekend, eurozone leaders and Cyprus agreed that, eligibility for an international bailout is contingent on the island's raising up to EUR 5.8b via taxing deposits. That includes up to 6.7% on deposit amounts below EUR 100k and 9.9% on deposits above that level. The move raised concern that eurozone leaders are willing to risk financial market disruptions even to an extreme, ao as to avoid sovereign defaults. Markets are concerned that the news will unsettle depositors in other countries. The Cyrus parliament will vote on the tax proposal today on the risk that it could also be rejected. Chaos rules.

Technically, the EUR/USD dipped through last week's low of 1.2910 and is threatening the 1.29 level. The EUR/GBP pair also broke through 0.8575 near term support. The EUR/CHF is back below 1.22. The EUR/JPY is pressing the 122 level; EUR/AUD also extended recent fall and breached 1.245. The overall picture is that euro is back under broad based selling pressure, and should remain weak in near term against all other major currencies. Risk aversion is boosting the yen broadly higher.

Meanwhile, the Aussie is also weighed down as Treasurer Swan said that the country is facing a "massive hit" to government revenue. He also warned that this will "inevitably continue to impact beyond the current year." Swan is worried that the government would not "put growth and jobs in our economy at risk by cutting further and deeper in the near term to fill in a hole in revenues." Based on figures released last week, Australia's deficit for the first four weeks of 2013 rose to AUD 4.6b, and took the total short fall for the fiscal year to AUD 26.8b. It recorded a AUD 44b deficit last fiscal year.

Latest CFTC data showed sharp deterioration in yen positions on March 12, compared to the previous week. Once again, speculators were clearly building up short positions, which are threatening to surpass last year's largest net shorts of -94.4k. Positions in sterling and Canadian dollar continued to deteriorate as well. The euro's position stabilized a little, with net shorts reduced slightly to -24.7k from -26.1k. Yen net shorts jumped sharply to -93.8k, just an inch from last December's -94.4k. Sterling positions continued to deteriorate for the eighth week running, with net shorts jumping to -49.8k, from -43.8k. Canadian dollar positions deteriorated slightly for an eighth week running to -53.4k net shorts, from -46.7k. Aussie net longs rose back to 23.3k, from 7.1k, but it's still way off January's high of 97.0k.