Cyprus braces for bailout crisis session, Cypriot mattress sales men getting ready for a big day of sales!
Overriding Market Themes
The EU Summit did not fail to bring some volatility to the markets towards the end of last week, ending with a decision announced on Saturday morning where euro zone finance ministers under a proposed deal to provide a bailout for Cyprus want deposit holders in Cyprus with less than EUR 100K in their accounts to pay a tax of 6.75% as a one off deal, and holders of funds in excess of EUR 100K will be hit with a 9.9% one off tax on their funds. This announcement has stunned Cypriots and as a result has caused a mass withdrawal on cashpoints, and electronic transfers were stopped to stop a complete depletion of funds.
Today Cyprus's parliament will hold an emergency session today to vote on this levy on bank deposits, in a deal that will in return raise 10bn-euro ($13bn; £8.6bn) bailout for Cyprus. The deal agreed by the EU and IMF in Brussels marks a radical departure from previous international aid packages. UK chancellor George Osborne has reassured British Expats that they will not be affected and will be fully compensated against any levy.
GBP took a hit in the early part of last week, following the dismal UK manufacturing data, pushing GBPEUR back trading in the 1.13's and GBPUSD back to the 2 year low mark hitting a week low at 1.4830. The manufacturing data was released on Tuesday and came out at -1.5% m/m v a flat forecast, following last month's UK AAA credit rating cut by Moody's it was yet another unwelcome chink in the armour that has not helped the continued downward value of sterling. GBP did however get a boost in the latter part of the week, GBP rallied on the back of comments made by BoE Governor Mervyn King, who said the Bank did not want the pound to fall any further as it was now "properly valued".
From across the pond the US continued to deliver better than expected data (with the debt crisis on the backburner for the time being), highlights being the retail sales at 1.1% m/m v forecast 0.5% m/m and Unemployment Claims coming out at 332k v 348k forecast.
The Australian dollar has continued to strengthen, trading at a low last Tuesday at 1.4376, gaining on the majors once again following official figures showing the strongest domestic jobs growth since 2000.
GBP This Week
The chancellor George Osborne will give his fourth Budget speech on 20 March at 12:30 GMT, the chancellor is under increasing pressure, including dissent from his own backbenchers, to ease on his plans for aggressive cuts which will reduce borrowing, and to look at measure that will lead to job creation. There is also expectations of changes to the BoE'S mandate happening this week, which would be released alongside the budget.
Another tough week expected for GBP, although the potential for some ground to be gained against the EUR on the back of the Cypriot deal being finalised will give EUR buyers v GBP some better short term hedging levels.
USD This Week
In a week that looks likely to be dominated by news feeds from Europe, the highlights from the US will be on Wednesday and Thursday. On Wednesday the FOMC Economic Projections, this report includes the FOMC's projection for economic growth and inflations over the next 2 years and in particular traders will be looking at the breakdown of individual FOMC member's interest rate forecasts. Bernake then speaks on Wednesday evening GMT at the FOMC Press Conference. On Thursday the Existing Homes Sales data and the Philly Fed Manufacturing Index is out.
EURUSD look set for some fun this week (big swing potential), with drastic action taken on the tax levy likely to go ahead in Cyprus traders will look for statements of stability over the week. The Range, as all major ranges this week, will be far wider than the last two weeks.
EUR This Week
It's hard to know the far-reaching implications if the Cypriot deal is pushed through. One this that’s looks certain this week however is volatility!
EUR looks set to be weaker over the next week, with European Bond Auctions disappointing last week and the Cyprus Bank levy decision starting this week, the pressure is on! At least for the short term!
In Other News
Wales thumped England 30-3 in Cardiff to take the 6 Nations, and defend their 2012 triumph, and by the looks of the streets of Cardiff on Sunday morning it definitely seems to be one the Welsh have enjoyed! With the Rugby coming to a close, the F1 2013 season has just begun, with Lotus driver Kimi Raikkonen beating Ferrari's Fernando Alonso in the season-opening Australian GP.