Cyprus Bail-out Terms Bring Turmoil in Markets - 18.3.2013

The single currency opened lower with a gap against the US dollar as the Cyprus bailout memorandum with troika( ECB, European Commission and IMF) demands 6.7% tax for deposits up to 100K and above that level a tax of 9.9%. The latter would allow the raise of €5.8B to add to the €10B that will be given by troika, should the parliament approve it today. The EURUSD opened early on Monday around 1.2890 from 1.3075 that was closed on Friday, a loss of 1.40%. Recent developments in the southeastern Mediterranean island which represents less than 0.5% of Eurozone’s GDP has triggered significant losses firstly for Asian indices with NIKKEI 225 closed 2.71% lower, Hang Seng is negative by 2% and Shanghai Composite closed lower by 1.68%. Additionally, the possibility of a bank run starting from Cyprus as depositors will lose trust in the euro-banking system and especially in the “PIGS” would give a new dimension in the European sovereign debt crisis and brings back the fear of a member country exit. European indices at the time being are losing heavily as CAC 40 is 1.13% down, DAX is losing 1.6% and IBEX 35 is falling by 1.7%. The Australian dollar also started with gap against the greenback today, it opened at 1.0359 and sank to key support at 1.0343 to rebound then trading at the time being around 1.0373. The USDJPY also opened lower, falling to 94.30 but it has quickly recovered closing the gap. Investors will be closely monitoring negotiations today as well as Cyprus parliamentary decision on the bail-out terms.