2013-03-25 18:18 (UTC)
XE Market Analysis
The Cyprus "fix" was given a second look in N.Y. trade, resulting in firming bunds, and a soggy euro. There was nothing on the U.S. economic calendar of much interest, so focus remained on Europe. The cascade of counterproductive remarks from the Eurozone was capped off by Dijsselbloem from the Eurogroup, who cast the Cyprus haircut as a "template for the rest of the eurozone" which should of course should ensure it will never be needed again. But that was enough to wave goodbye to the euro below $1.29 to session lows of 1.2855. The initial relief over the Cyprus deal didn't last long, and risk aversion returned in the afternoon, as the reality of the deal sunk in, and concerns about the implications for the future of the eurozone as a whole resurfaced. Elsewhere, the dollar and yen were mostly firmer, as the initial "risk-on" reaction to the Cyprus fix, turned to talk of contagion elsewhere in the EU periphery. Wall Street was dragged lower after opening higher, helping support the greenback. Late in the session, Eurogroup's Dijsselbloem retracted statement that Cyprus was a "template" for bank restructurings in the Eurozone, according to wires. Took them a while, but stocks yields and the euro moved above earlier lows.[EUR, USD]
EUR-USD broke 1.2900 and extended under the 200-dma around 1.2880 to base at 1.2830. the close under that level is a strong signal for further weakness. EUR broke the 200-dma last week, but did not close under the level, which encouraged bottom fishing. We think momentum may be more favorable for sustained losses this week. Comments from the Chairman of the Cyprus parliamentary committee raised eye brows after the government cobbled together a hasty plan to avoid bankruptcy. He said it should weigh up the benefits of exiting the euro. The U.K. Observer dug up a former Kremlin adviser Nekrassov to opine the sort of reprisals Russia could inflict after Russian investors got hit heavily in the Cyprus deal. He said Russia could look at freezing or taxing assets of European companies. The Cyprus ordeal may not be done with just yet.[USD, JPY]
USD-JPY maintains narrow ranges. It benefited from early EUR-USD selling pressure, which lifted it back into the 94.90-00, where exporter offers have capped since the Asian session. The subsequent pullback into 94.65 came on EUR-JPY's fall from 123.20 to 122.30 lows since the N.Y. session got underway. Later though, as risk appetite reversed into negative territory, the yen picked up some ground, taking USD-JPY toward 93.50, and sinking the cross to 120.10.[GBP, USD]
GBP renewed some its safety credentials in the wake of eurozone uncertainty; and since BoE Governor King and other MPC members ensured that it was no longer a one-way bet. Against a backdrop of falling equity markets and appetite for safety, cable has performed relatively well, leaving it close to 1.5170 from early N.Y. levels around 1.5210 and a moderate distance from mid-March lows around 1.4830. EUR-GBP's fall back from over 0.8550 to lows from February-11 at 0.8485 has been a major influence and in the short term all markets are likely to be on eurozone watch. Market talk of a potential sovereign downgrade of Italy is doing the rounds as political uncertainty weighs. Moody's declined comment when pressed for a reaction.[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 in Asia. However, it could not sustain higher levels as EUR selling pressure picked up on strength. EUR-CHF drifted back to back to 1.2185 by late N.Y. before reclaiming the 1.2200 mark into the close. USD-CHF was choppy around 0.9400 in London, though recovered back toward 0.9500 in late U.S. trade, helped by the return of risk aversion.[USD, CAD]
USD-CAD found support under 1.0190, after slipping from over 1.0230 in London. The better risk backdrop following the Cyprus deal helped the CAD, as equities and oil prices rebounded. The March low of 1.0182 provided initial support, and as stocks quickly faded, the pairing moved back toward 1.0225 in quiet dealings.