2013-03-25 07:18 (UTC)
XE Market Analysis
EUR rallied, while JPY and USD fell after news that Cyprus reached a deal in order to get its EUR 10 bln bailout. Cyprus will set up a good bank and bad bank. Popular Bank of Cyprus (Laiki) will be closed and all deposits over EUR 100k will be frozen and used to cover the debt. All deposits below EUR 100k in Laiki will be transferred to Bank of Cyprus. Deposits over EUR 100k at Bank of Cyprus will take a haircut, but until it is recapitalised it is unknown how large these will be. ECB will now continue to provide liquidity to Cyprus, said Eurogroup President Dijsellbloem. Risk appetite improved significantly on the news, which enabled Cable to consolidate gains ahead of 1.5250 and AUD also held steady around 1.0450.[EUR, USD]
EUR-USD started the session under pressure after Cyprus were unable to reach a deal over the weekend, but it rebounded sharply from 1.2940 to settle around 1.3050 after a deal was announced. The deal will mean Cyprus will avoid an EMU exit, though some of the details are still unknown until Bank of Cyprus is recapitalised. After EUR-USD traded at 1.3050 is edged back to the 1.3030, yet should find support on dips, with stock markets in Europe expected to perform well on the news. EUR offers are expected to increase in size towards 1.3075 and 1.3100. Once markets settle down economic fundamentals should come back to the fore and this is likely to comprise EUR-USD's ability to sustain upward momentum.[USD, JPY]
USD-JPY and the JPY crosses headed higher after risk appetite improved after Cyprus reached a deal, which kept it in the eurozone. USD-JPY rallied out of 94.30 to reach the 95.00 area. Further gains were limited by Japanese exporter offers, which may increase over the course of the week due to the Japanese fiscal year-end. EUR-JPY was boosted out of early lows of 122.10 and reached 123.85. Offers from the 124.00 region limited further gains and it edged back towards 123.30 by late Asia.[GBP, USD]
Fitch placed the U.K. on rating watch negative late Friday, confirming the "heightened probability of a downgrade in the UK rating near-term." This reflected the latest economic and fiscal forecasts, though overall the UK creditworthiness is underpinned by its high income, diversified and flexible economy. Cable slid in the aftermath of the Fitch U.K. downgrade threat, falling to 1.5190 from near 1.5250. However, the pairing quickly bounced back over 1.5250 in very thin Friday N.Y. trade, as the news was not all that surprising. In Asia, it maintained a supportive tone throughout close to the 1.5250 and risk remains on the topside.[USD, CHF]
EUR-CHF traded off EUR-USD movement. News of the Cyprus deal enabled it to trade from 1.2205 back over 1.2250. After the kneejerk rally it drifted back to 1.2230 by late Asia, with EUR upward momentum a little restrained as market participants digest all the elements of the Cyprus deal, while eurozone fundamentals also remain weak. EUR-CHF's inability to sustain 1.2250 may see selling pressure pick up on upticks. Meanwhile, the kneejerk EUR rally forced USD-CHF back below 0.9400.[USD, CAD]
USD-CAD eased towards 1.0220 in Asia after risk taking improved on the Cyprus news. However, ranges were narrow overnight and more of the same is likely during the European morning. Bid interest has picked up again ahead of 1.0200, which is protecting a round of sell stops. Offers are now seen from the 1.0250-60 region.