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CYPRUS is Pain in Neck for European Policy Makers – March 20

March 20, 2013

 

It was nothing very unusual, during the day Euro tumbled under the pressure and got further clobbering on Cypriot Parliament’s rejection voting against the controversial plan to tax depositors that was supposed to be conditional part of bailout package. If we try to measure the size of Cyprus contribution in financial terms, it hardly represents couple of basis point in GDP terms. But what is more important is that it gives a message that money is banks is not safe, it is at the helm of governments/politicians and they can any decision that suits them. This is also a reminder to all the depositors that that global norms have changed and therefore, they can have control on physical assets or tangible assets but bank deposits could be risky. 

 The bottom line could be that if Cyprus fails to generate Euro 5.8 billion through its own resources, it could default and may have to say goodbye to Euro. Over the years my experience suggest that Euro-zones think tank does not take such type of risk probably well aware of the consequences/price that could be the starting point of break-up of Euro-zone and hence, may come-up with yet another alternate. Draghi’s offer to come to the rescue of Cyprus by providing liquidity is the first sign of nervousness probably succumbing to the pressure that also exposes the European leaderships weakness, hinting that it can become hostage to any European country’s demand.
 
The Cyprus uncertainty will continue to loom unless there is more clarity and if banks in Cyprus decides another day of holiday on Thursday (tomorrow) will further depress the market condition. Or if banks announces normal working condition on Thursday then large part of money from banks will be drained, out as no one would like to pay taxes. From the Cypriot bank account every penny that is allowed is taken out from ATM.
 
The recent Cyprus unrest shifted the focus from FED’s FOMC meeting, as everyone is more keen on Cyprus development. US Dollar, Gold and Yen are the real beneficiary. Market uncertainty will linger on unless more is known about Cyprus. But I suspect that before FED announcement we could see some correction in currencies and gold could be the real beneficiary.
 GMT 3:14 – EURO @ 1.2876 =I am expecting 1.2840-50 zones to hold and break of 1.2898 will open gates for a test and break of 1.2925 for a possible test of 1.2960-70 zones before another drop. Do keep an eye on 1.2810, which should not surrender until New York opening or else could see more heavy losses. 
GMT 3;28 – GBP @ 1.5093 = Cable has strong support around 1.5040-50 levels, but needs to move beyond 1.5140 for test of 1.5160-70 zones.   Or else 1.5020.
GMT 3:33 – JPY 95.06 = Yen gains should not extend beyond 94.40, but I am expecting to hold around 94.70for 95.25 break would encourage for tests of 95.50-60 zones.
GMT 3:35 – AUD @ 1.0375 = See support around 1.0335-40 levels, but 1.0430 will not be easy to crack.
GMT 3:39 – GOLD @ $ 1612 = Gold should find support around $ 1605-06 levels as I am looking for a test of $ 1618-20. Break will encourage for $ 1624-25, as $ 1600-02 is the key level on the downside. 
 
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