As Citi's Steven Englander suggested earlier,
the developments in Cyprus will lead to EUR selling and USD, CHF, GBP, NOK and SEK buying (in that order).
He adds, the issue is whether to believe that the Cyprus levy on
depositors is one-off, but depositors and investors elsewhere could
easily see this as another in a string of ‘one-offs’ and react badly.
The risk-return to depositors in countries with weak banking systems may
not favor taking the risk that Cypriot banking system was so unique
that such a levy would never be considered elsewhere. The levy on
deposits ostensibly covered by deposit insurance may also undermine
confidence in weak banks. The question is whether this becomes a
full-blown crisis or a mini-crisis. For now, as FX markets open, it
appears EURJPY is getting hammered (from 124.47 close to 121.6)
implying S&P futures will open down around 30 points. We are sure Abe is watching closely...
Given the element of surprise,
it is probably the case that
euro zone policymakers will not have concrete measures prepared to
convince depositors elsewhere that this will never happen again.
So it seems likely in the first instance some resurgence of tail risk
will re-appear and that there is a risk that we could see a downward
spike in the euro and significant backing up of spreads.
EURUSD has opened and is -140 pips for now...
and CHF is bid...
and all that good jawboning by Carney gone dow the drain... as GBP bid too...
the question is will the Swissie bid on Europe's risk flare recouple
the S&P 500 with reality once again... as it did after theItalian
election...
and of course everyone's favorite USDJPY...
Leaving us asking 'Is This It?' as a terrible case of deja vu comes over the market once again...
or this?
or perhaps
more appropriately this?
Charts: Bloomberg
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