Market Review for March 19

Cyprus: between a rock and a hard place

All day currency held in narrow ranges, having hidden pending on Cyprus. The government caught between a rock and a hard place, trying to get money from Germany and not to offend Russia. As a result, EUR/USD ended the day in the 1.2920 and GBP/USD — in the region of 1.51.

EUR/USD kept very quiet, and positive data on the German ZEW survey could not take the strain. The pair opened at 1.2955 during the day and was able to rise to only 1.2969, but during the American session activity of the players grew up. During this time, has been made at least 1.2843, but after the pair pulled back above 1.29 against the background of the news that the ECB is ready to provide liquidity Cyprus. Meanwhile, the government could not decide what to do, developing different versions of the confiscation of property investors: 12.5% ​​of deposits in excess of the 500,000, 9.9% for those with 100-500 thousand, 6.75% for those with 20-100 thousand, and generally no taxes for those with less than 20,000 in the account. As a result, the parliament said «no», and «Three» seems to say «yes», so that the pair finished the day almost neutral at 1.2920.

GBP/USD has continued to keep the brand, not reacting to these problems of Cyprus. Couple did not even reacted to the publication of the British releases on inflation, although rate at the production level has increased significantly. In addition, investors did not attempt to adjust the position before the publication of minutes of the previous meeting of the MPC. As a result, the pair opened the day at 1.5102 and ended the day almost there.

USD/JPY little jittery during the day, more on changing attitudes towards risk. The final performance of the Bank of Japan’s Shirakawa did not make much of an impression on the market, although he expressed concern over the possibility of the loss of the central bank’s independence. The pair opened day at 95.17, reached a maximum of 95.74, but fell back to the area of ​​95.00 to close.

Forecast for Wednesday, March 20, 2013

It is clear that all the attention is on the unsolved problem of Cyprus, and the topic is increasingly cluttered with rumors the resignation of Finance Minister, discussing ways out of the eurozone, as well as to the likelihood that the EU is going to back down, now understand the danger that a precedent will be created. Still too many uncertainties, and that is what keeps the EUR/USD in the 1.29, not allowing to recover to 1.30.

If everything remains the same places, and the decision to postpone Cyprus for the weekend (there are rumors that the banks do not open until next Tuesday), the breakdown of 1.2860 targeting 1.2780 is very likely. This can contribute to meeting many FOMC, which somehow forgotten. New portion of the rhetoric of the Committee, flavored with updated forecast may strengthen the position of USD. Particularly if members will show more aggression towards monetary policy, suggesting the imminent completion of the program QE3.

As for the GBP/USD, as you can see, the couple is not particularly afraid of the forthcoming protocol, expecting that the ratio of votes to remain the same. Indeed, given the relatively high level of inflation (above the target 2%), MPC members may refrain from further easing in monetary policy. King’s recent comments regarding the slow but steady recovery only lead us in that outcome. Thus, not excluded new breakthrough pair up with the immediate goal of 1.52 and below 1.5260.

Wednesday marks the first day of the new board of the Bank of Japan, and Kuroda can prepare something interesting. In the best case for the USD/JPY the new manager will convene an emergency meeting on how to change the course of monetary policy. Under this scenario, the couple can take off dramatically in the area of ​​96.20 to 97.00 for further purpose. Meanwhile, USD/JPY could support and a more aggressive attitude Fed., And the expectation of the first press conference of the new Bank of Japan, scheduled for Thursday. The only thing that can prevent the growth — it is the European troubles that trigger risk aversion. But for now we are focused on the north.

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