The Cypriot bailout which is really an undemocratic bail in of depositors has knocked the Euro and Aussie lower this morning as the markets try to grasp with the implications of the haircut on depositors of 9.9% will be for the wider European markets. We have looked at Cyprus in a special note this morning which you can find here.
The whole Cyrpiot thing casts a pall over the positivity with which markets closed the week.
Already the Euro and Aussie are lower than the close on Saturday Morning. The Aussie closed above 1.04 at 1.0415 which is its best daily close since February 5th while the Euro ended the week at 1.3073 right on our fast moving average. Reuters is showing this morning that the Aussie is changing hands at 1.0352 and the Euro at 1.2928 which is a huge drop and a clear result of the Cypriot bailout and while it is early doors Sydney trade with Asia not even up yet there is likely to be some pressure on the Euro today.
Equally the Aussie has come under pressure but if we assume that this Cypriot concern grows then the Aussie and the US dollar are the two “Major” currencies that should benefit the most. The rationale for that assertion runs as follows. If you are a depositor or any kind, private individual, small company, multinational, Financial Institution or Global oligarch you are now at risk in the EU banking system with the possible exception of Germany and Finland both nations are the clear beneficiaries of the Euro as otherwise the Deustchemark and the Markka would be through the roof and losing competitiveness by the second.
So if you are a depositor in Greece, in Italy, in Spain, Portugal or even the UK possibly is your money safe from the long arm of the doctrinaire Finnish and German technocrats.
So the Aussie might actually get a genuine safe haven bid against the Euro and some other currencies. Safe Haven in the sense that your deposits in Australia are safe from hair cuts regardless of what happens overseas. So EURAUD could be headed substantially lower.
The set up for this cross was for a rally back toward the fast moving average but should it take out the recent low then a move toward the 200 day moving average at 1.2385 is in train and if that breaks then 1.2290 and then the low of last year at 1.2150 opens up.
The Yen is also likely to get catch a bid against the Euro and perhaps against the US dollar as well on the back of safe haven flow although it is worth noting the Doves have been appointed to the BoJ as expected which might slow things down a little. The GBP is likely to come under pressure as well given it has some of the same problems that Cyprus and the rest of Europe has with regard to its banks and banking system.
Looking at the stock market performance Friday saw a weaker end to the week in the US with the Dow down 0.17% to 14,514, the Nasdaq fell 0.30% and the S&P missed the all-time high closing at 1,561 down 0.14%. The Reuters Michigan Consumer Confidence data fell to 71.8 from 77.6 but Industrial Production rose 0.7% versus the 0.4% expected and capacity utilisation was higher than expected.
In Europe stocks were also lower with falls across the board. The FTSE fell 0.60%, the CAC dropped 0.71% but the DAX only dropped 0.19%. Both Italian and Spanish stock markets fell 0.45% and 0.43% repectively.
On Commodity markets Nymex Crude was up again to $93.45 with a gain of 0.45%. Gold is at $1594 and if Cyprus doesn’t kick it toward $1619 nothing will. Silver is at $28.77 oz and likely to also increase.
Data
This week the Fed meets and we find it hard to believe they won’t make some reference to the improving US economy and thus their discussions around stimulus withdrawal. We’ll know on Thursday.
Today in Australia we have the miracle number of new motor vehicle sales. This data has persistently amazed us with its strength but surely it has to slow soon?
Thoughts, comments, queries together with frank and fearless feedbackall welcome. I’m happy to answer questions or comments on the comment stream wherever I can.
NB: Please note all references to rates above are approximate and should not be used for trade reference.