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Euro-Zone Policy Makers Cannot Afford Cyprus Collapse – March 21

March 21, 2013
The Cyprus issue continues to linger on without any solution after the refusal by its Parliament not to endorse IMF demand. Though the economy is tiny and should not bother Euro-zone economies, but this is tricky, as any leniency will give space to larger struggling economies, which may not be manageable and this why in my yesterday’s post I said that Euro-zones think tank will not take any risk because they are aware of the repercussions and will provide an alternate instead of allowing default. 
Earlier it was Draghi and today it is Merkel extending her support to Cyprus, but she also told Cyprus President not to talk to 3rd party, which could mean IMF or international lenders probably not keen to get Russia involved. I think they all can smell the cost of dropping out Cyprus from the 17-nation Euro-zone club that could once again destabilize Europe’s financial sector and getting assistance from Russia could mean politics rather then help from European perspective though Russia is part of Europe and out of estimated over 35 pct of the total deposit belonging to foreigners nearly half of the depositors are from Russia. So its Euro-zones policy makers call.
 Most important event of the day was FED policy statement that as sidelined due to Cyprus financial unrest. But MPS was as per expectation, FED did not deviate from its earlier plan as the mending goes on. It may continue its aggressive bond purchase of USD 85 billion a month until the economy and the job market stabilizes because it is still easier for the job market to go beyond 8 pct rather than achieving 6.5 pct target, which is a tedious job, as FED does see this happening until 2015. Though he hinted that if the economy gathers pace, FED may consider reducing the bond purchase amount. Market will once again be looking after the economic data for more clues.   
 Meanwhile, it is never too easy to read the budget on 1st instant, but UK budget, which apparently sounded OK in difficult times did signal more hard work is required as tough days are still ahead. Normally its takes few of days to have better understanding of any national budget. 
 Minutes from BOE’s March MPS showed that out of 9-members Mervin King could get two more votes in favour of expanding its balance sheet, as 6-members may have thought that it increases risk of inflation and were against further depreciation of Pound Sterling. I think GBP will be looking for excuse to surge, so watch out sellers, data could do the trick for Cable lovers.
 GMT 8:17 – EURO @ 1.2953 =  Looking for 1.2910-20 to hold in Asian and early European session, but Euro may find tops around 1.2980 zones. Unless break 1.3040-50 levels, see risk for a fall. Pick the top and Sell EURO.
GMT 3:21 – GBP @ 1.5122 = Buy on dips around 1.5080-90 preferred. Should hold 1.5040 for 1tweat and break of 1.5155 for 1.5185-90.
GMT 3:33 – JPY @ 95.96 = Next important level is 96.25-30, should hold for gains as Japanese currency is required to penetrate 95.60-70 zones for deeper correction or else 96.50.
GMT 3:37 – AUD @ 1.0376 = Aussie has good support around 1.0340-50 and only break risk for 1.0310. However needs to move beyond 1.0395-05 levels for a test of 1.0425.
GMT 3:44  – GOLD @ $ 1607.90 = Needs to move beyond $ 1612 for test of $ 1618-20 zones. However, in Asia/Europe may exhaust around $ 161012 zones for test of $ 1602-04. Break of $ 1594 should ease the up-moves.
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