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Euro Sinks, Japanese Yen Soars on Cyprus Bank Levy Proposal

Euro Sinks, Japanese Yen Soars on Cyprus Bank Levy Proposal

2013-03-18 09:08:00
Ilya Spivak, Head Strategist, APAC
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The Euro dropped against all of its counterparts while the Japanese Yen outperformed as details of Cyprus’ EU bailout deal emerged.

Talking Points

  • Euro Broadly Sold After Cyprus Unveils Bank Levy as Part of Bailout
  • Japanese Yen Soars as Eurozone Bank Run Fears Spark Risk Aversion
  • Spotlight on Cyprus Parliament as EU Rescue Terms are Put to a Vote

The Euro is down against all of its major counterparts as financial markets digest the terms of a bailout deal for Cyprus emerged over the weekend. The proposal ties a €10 billion international rescue package from the so-called “troika” (EU/ECB/IMF) to a levy on Cyprus banks’ deposits. Holdings of up to €100,000 for both residents and non-residents are to be taxed at 6.7 percent tax while those above that threshold are to pay out 9.9 percent. The news is producing widespread risk aversion, with haven flows buying the Japanese Yen and US Dollar.

While Cyprus is a relatively small economy – comprising just 0.2 percent of overall Eurozone GDP – the level of worry evident across the markets likely reflects fears of the precedent that EU officials are setting. As with Greece, investors are transposing what is happening now Cyprus to what a similar course of action might look like were to be implemented in a country like Spain, where a sickly banking sector is likewise at the center of the country’s malaise.

The worst-case scenario is a bank a run across the Eurozone as depositors scramble to move their capital out the region to avoid being caught in a Cyprus-like scenario. This potentially carries the risk of a regional credit crunch, which could raise questions about the solvency of some weaker lenders. If some of those were to topple, a global crisis akin to the fall of Lehman Brothers would not be out of the question.

S&P 500 index futures are pointing sharply lower, hinting sentiment is likely to remain under pressure as Wall Street joins the fray. The spotlight now turns to Cyprus’ Parliament, which is due to vote on the levy at 14:00 GMT. The economic data docket is relatively quiet, with January’s Eurozone Trade Balance figures amounting to the only noteworthy item on the docket.

Asia Session:

GMT

CCY

EVENT

ACT

EXP

PREV

21:00

NZD

Westpac NZ Consumer Confidence (1Q)

110.8

-

111.1

21:30

NZD

Performance Services Index (FEB)

55.5

-

52.8

0:01

GBP

Rightmove House Prices (MoM) (MAR)

1.7%

-

2.8%

0:01

GBP

Rightmove House Prices (YoY) (MAR)

1.2%

-

1.1%

0:30

AUD

New Motor Vehicle Sales (MoM) (FEB)

0.0%

-

-2.2% (R+)

0:30

AUD

New Motor Vehicle Sales (YoY) (FEB)

9.4%

-

10.9% (R+)

1:30

CNY

China February Property Prices (FEB)

-

-

-

Euro Session:

GMT

CCY

EVENT

EXP

PREV

IMPACT

6:45

CHF

SECO March 2013 Economic Forecasts

-

-

Medium

10:00

EUR

Euro-Zone Trade Balance s.a. (euros)

10.9B

12.0B

Low

10:00

EUR

Euro-Zone Trade Balance (euros)

-3.5B

11.7B

Low

14:00

EUR

Parliament of Cyprus to Vote on EU Bailout

-

-

High

Critical Levels:

CCY

SUPPORT

RESISTANCE

EURUSD

1.2847

1.3122

GBPUSD

1.5063

1.5228

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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