Disappointing German IFO Survey Fails to Distract Euro Traders from Cyprus

By Benjamin Spier 22 March 2013 09:43 GMT THE TAKEAWAY: IFO business climate survey falls to 106.7 in March, following a 10-month high -> Bundesbank predicts economic growth in the current quarter -> Euro trading remains focused on Cyprus

The IFO German business climate survey declined for the first time in five months in March, after reaching a 10-month high in February. The business climate survey was reported at 106.7, disappointing expectations for 107.8 and down from 107.4 in the previous month. The IFO current assessment survey unexpectedly fell to 109.9 from 100.2 in February, and the IFO expectations survey fell to 103.6 from 104.6.

The results are based on IFO surveys of German firms, and the main business climate survey has not fallen below the neutral 100.0 point in three years.

The German economy is the Euro-zone’s biggest economy, and also one of the best performers through the Euro-zone debt crisis. The German GDP declined 0.6% in Q4, but the Bundesbank has predicted the country will see economic growth in the current quarter. Signs of further weakness in German economic growth are Euro negative.

That is why the Euro declined nearly twenty points and below 1.2900 against the US Dollar following the disappointing release. However, the Euro has recovered all those losses, as single currency traders remained focused on the Cyprus crisis. EUR/USD may now be seeing resistance at 1.2920, by a long term downward trend line from November 2011. A 200 day moving average may provide support around 1.2870.

EURUSD Daily: March 22, 2013

Chart created by Benjamin Spier using Marketscope 2.0

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to bbspier@fxcm.com .

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22 March 2013 09:43 GMT

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Forex News: Euro Plummets as Cyprus Bailout Stokes Bank Run Fears

THE TAKEAWAY: Cyprus bailout plan proposes tax on bank deposits > Levy has ignited fear of region-wide capital flight > Euro plummets against all of its major counterparts

A bailout plan for Cyprus announced on over the weekend has pushed the Euro sharply lower at the start of the trading week amid rising fears of mass capital flight.The proposal ties a €10 billion international bailout from the so-called “troika” (EU/ECB/IMF) to a levy on Cyprus banks’ accounts. Deposits up to €100,000 for both resident and non-residents are to be taxed at 6.7 percent tax while those above that threshold are to pay out 9.9percent. For his part, Cypriot President Nicos Anastasiades has voiced support for the levies but has claimed to be working to shift more of the burden from small depositors to large ones.

While Cyprus is a relatively small economy – comprising just 0.2 percent of overall Eurozone GDP – the level of panic evident across financial markets likely reflects fears of the precedent that EU officials are setting. As with Greece, investors are transposing what is happening now Cyprus to what a similar course of action might look like were to be implemented in a country like Spain, where a sickly banking sector is likewise at the center of the country’s malaise.

As markets near the opening bell in Europe, this is creating concerns about a bank a run across the Eurozone as depositors scramble to move their capital out the region to avoid a Cyprus-like scenario. This potentially carries the risk of regional credit crunch, which could raise questions about the solvency of some weaker lenders. If one were to topple, a global crisis akin to the fall of Lehman Brothers would not be out of the question.

The Euro plummeted against all of its counterparts at the start of the trading week. The most pronounced decline was recorded against the Japanese Yen, where the single currency fell nearly 2 percent. EUR/USD likewise tracked downward, hitting the lowest levels since December, 2012.

EUR/JPY 1 Minute Chart

Chart Created by Robin Leung using Marketscope 2.0

EUR/USD 1 Minute Chart

Chart Created by Robin Leung using Marketscope 2.0

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Cyprus passes all bills on bank resolution required for E.U. bailout

wall street priced in the deal yesterday.

go long good bank short bad bank.

One plan pushed by European finance officials could see Cyprus Popular Bank (CPB) and the Bank of Cyprus Plc (BOCY), the country’s largest, split to create a so-called bad bank. Insured deposits -- below the European Union ceiling of 100,000 euros -- would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, four euro-region officials said.

http://www.bloomberg.com/news/2013-0...e-to-meet.html

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