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25 Mar 2013
Forex Flash: Euro rebounds in knee jerk fashion as Cyprus deal agreed - BTMU
FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the Euro rebounded in the Asian trading session with EUR/USD rising back above the 1.3000-level.
He adds that it followed the announcement that Cyprus has reached an eleventh hour agreement with the Troika, securing financial support, totaling EUR10 bln.He feels that the agreement will allow the ECB to continue to provide emergency lending assistance to the Cypriot banking system, which is it had been pulled today without an agreement in place would have opened the door to Cyprus leaving the Euro.
Hardman continues to note that the new programme will result in the Laiki Bank being closed with EUR4.2 bln of deposits over EUR 100k being placed in a bad bank which could be wiped out. Additionally, he notes that in addition, both junior and senior bondholders in Laiki will be wiped out. However, the remaining smaller deposits worth up to EUR100k will be transferred to the Bank of Cyprus. Further, The Bank of Cyprus will also be restructured with deposits over EUR100k frozen until the authorities are able to assess how much cash is required to recapitalise it to healthy EU-mandated capital levels.
However, in contrast to the rejected bank levy proposal, smaller deposits up to EUR100k under the EU-wide deposit guarantee scheme will remain protected although larger deposits will be hit harder. Hardman writes, “Reportedly it has not yet been decided whether Cypriot banks will re-open on Tuesday. The agreement is likely to prove only modestly positive for financial markets in the near-term given the fairly limited negative reaction to uncertainty in Cyprus prior to the agreement being reached. The initial favourable market reaction to the Cyprus deal has supported the resumption of the yen weakening trend as investor risk sentiment improves.”
He adds that it followed the announcement that Cyprus has reached an eleventh hour agreement with the Troika, securing financial support, totaling EUR10 bln.He feels that the agreement will allow the ECB to continue to provide emergency lending assistance to the Cypriot banking system, which is it had been pulled today without an agreement in place would have opened the door to Cyprus leaving the Euro.
Hardman continues to note that the new programme will result in the Laiki Bank being closed with EUR4.2 bln of deposits over EUR 100k being placed in a bad bank which could be wiped out. Additionally, he notes that in addition, both junior and senior bondholders in Laiki will be wiped out. However, the remaining smaller deposits worth up to EUR100k will be transferred to the Bank of Cyprus. Further, The Bank of Cyprus will also be restructured with deposits over EUR100k frozen until the authorities are able to assess how much cash is required to recapitalise it to healthy EU-mandated capital levels.
However, in contrast to the rejected bank levy proposal, smaller deposits up to EUR100k under the EU-wide deposit guarantee scheme will remain protected although larger deposits will be hit harder. Hardman writes, “Reportedly it has not yet been decided whether Cypriot banks will re-open on Tuesday. The agreement is likely to prove only modestly positive for financial markets in the near-term given the fairly limited negative reaction to uncertainty in Cyprus prior to the agreement being reached. The initial favourable market reaction to the Cyprus deal has supported the resumption of the yen weakening trend as investor risk sentiment improves.”