The risk appetite is still depressed by the proposal of Cyprus rescue plan proposal by EU and IMF despite the recent given space to it to get out Eur5.8B anyway out of its banking sector depositors to let it fulfill its previous obligation of insuring the accounts amounts which are less than Eur100k.
God willing the voting is planned to be today and delaying it 2 times looking for much more flexibility from EU and IMF and also looking for backing to this plan inside Cyprus while the other option as its President Nicos Anastasiades has said is the bankruptcy of the biggest 2 Cypriot banks at least.
But anyway the implications of the plan announcement are indeed in need to be analyzed. We have seen the greenback rising with the Japanese yen across the broad on the risk aversion and also we could see again the gold getting up rising above 1600$ per ounce level with the beginning of the week as it looked to the investors a clear option for avoiding the risk.
The deal itself looked like a punishment imposed to the Cyprus banks depositors who have among them who are looking for money laundry offshore and in the same time under the EU regulations.
The Mediterranean island has been accused during the negotiations of letting money in the island with no restrictions or accurate accounting can show clear targets of this money and so the rescue plan came like that to threat who are looking to do this process there. The euro group has seen recently in the ballooning of the Cypriot banking system comparing to its GDP and comparing to its European counterpart an enough clue of doing that.
So, the remarks came from the ECB member Jorg Asmussen to calm down the market as expected showing to intention to do a similar step in another European countries and Cyprus is a special case but the action has left in the market sentiment and the investors’ minds the possibility of a having a similar stance in higher indebted bigger countries in EU Like Spain which have debt to GDP ratio at 84% in 2012 after its debt has grown to Eur845B in 2012 as the central bank of Spain has said by the weekend or Italy as both of them go directly to the markets for financing their debt with no transaction from the ECB OMT as there is no rescue plan for any one of them while Greece, Portugal and Ireland have this option.
While the financial, economical and political situations are getting complicated in Italy which has bigger economy than the double of these last three ones.
So, the stance can be miserable to the EU, in the case of deterioration of the crisis and it’s now highly probable with no secured stable government over the short term can implement austerities measures and spur growth in the same time while the offensive stance against the austerities measures there was a key of collecting votes.
So, these measures can be exposed to be cut or suspended by God’s will in Italy which has unemployment rate now at 11.7% in last January and industrial productions at its lowest amount since 1990 in last December and also GDP shrinking at a faster pace q/q in Q4 by 0.9% from 0.2% in Q3 driving its debt to GDP ratio up to 127% in 2012.
The implication of this stance was clear last week with yield over 3 year Italian uncovered bonds auction rising to 2.48% from 2.3% days before the elections when it was not well-known between Birsani and Berlusconi from 1.85% at the Auction before that while the tendency to safer positions dragged down the yields over the 2 years German Bunds to 0.06% from 0.21% in the previous auction of it and this percentage can go negatively again in the future by God’s will, in the case of having further dovish sentiment in EU with more worries about the debt crisis.
By God's will, EURUSD can face now in the case of rising further psychological level at 1.30 which could cap it yesterday while breaking it can open the way for higher resisting levels at 1.3106, 1.3134, 1.3162, 1.3317, 1.3433, 1.3519, 1.3598 before 1.3709 which has been reached after US non-farm payrolls of Jan which has shown adding 157k jobs has been revised down last to 119k with Feb labor report which has shown adding 236k out of the farming sector supporting the greenback which is facing now important supporting level of the single currency against it could hold unbroken in the beginning of this week too at 1.2876 and it could prop up the pair also after reaching it after US non-farm payrolls of November which ended to adding 161k Jobs while it has been reached when there was a day before it increasing expectations of having another interest rate cut by ECB after 6th of last December ECB meeting had come with decision of having the interest rate unchanged at 0.75% by majority not unanimously as what have happened in the next 2 meetings after it while that meeting has shown ECB economic downward revision of its economic projection of the inflation and growth in EU too but getting down below 1.2876 can be met by another supporting level at 1.2734 before 1.2661 again whereas it could rebound after the market worries about Greece got down while breaking it too can lead to another supporting level at 1.2464.
Kind Regards
FX Market Strategist
Walid Salah El Din
Mob: +20 12 2465 9143
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