Market Movers for March 25, 2013
EURUSD sees relief rally after deal on Cyrus reached but 3050 caps now
Bernanke speech key event in North America
Europe 1.03% Nikkei 1.69%
Oil $94/bbl
Gold $1606/oz.

Europe and Asia:
NZD Trade Balance
GBP BBA Loans for House Purchase

North America:
USD Chicago Fed Nat Activity Index 7:30

The currency markets breathed a sigh of relief and EURUSD popped on the news that Cyprus and EZ reached a deal to resolve the banking crisis in the country, but the rally stalled ahead of the 1.3050 level as traders remained cautious about the fallout effects from the deal.

The EU authorities and Cyprus agreed to protect depositors under 100,000 EUR but depositors above that level face unknow haircuts with some experts estimating that they could amount to 40% of face value of their deposits. The deal also called for an effective closure of the Laiki bank with deposits of under 100,000 EUR to be transferred to Bank of Cyprus.

The EU has committed approximately 10 Billion EUR in rescue funds for the Cypriot banking system and once the respective parliaments approve the package Cyprus should begin to receive the funds by May. The deal as structured does not require a fresh vote from the parliament of Cyprus and as such removes the political risk that scuttled the first rescue attempt last week.

With the Cyprus deal done the EZ appears to have dodged another bullet as fears of greater contagion begin to recede from the market, but the events of the past week only stand to highlight the dysfunctional state of affairs in the EZ banking sector and press the need for banking union in the region. The new EU group president Jeroen Dijsselbloem made very much the same point in the post announcement press conference.

The EURUSD which remained remarkably resilient throughout the tumult last week, traded above the 1.3000 level in mid morning European dealing as it tried to fill the gap left from a week’s ago panicky open. The pair has found support at the 1.2850 level and is likely stabilize and perhaps even extend its relief rally this week, but as attention turns away from Cyprus, the focus in the market is likely to return to the region’s deteriorating fundamentals.

Last week’s disappointing results in flash PMI reading from Germany and France suggest that the EZ will likely record its sixth consecutive quarter of contraction. This week the economic calendar carries little event risk, but latest German consumer confidence figures as well the retail sales reports should offer further clues to the market as to the state of demand in EZ largest and most important economy.

Meanwhile in North America today the markets are likely to react positively to the resolution of the crisis in Cyprus and EURUSD may get a further lift as tries to rally towards the 1.3050 level to fully fill the gap that has been open for more than a week.

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