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Forex Flash: Cyprus to dominate after shock ‘deposit tax’ announcement - BTMU

FXstreet.com (Barcelona) - Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ comments that the immediate focus at the outset of the London trading session is whether or not the deal will be passed in parliament in Cyprus.

He writes, “The ECB had urged for a vote yesterday before the markets opened today but that was postponed, so the focus is very much on getting this passed in parliament. There are apparent negotiations ongoing in tweaking the tax rate levels for deposits under 100k, this may be required in order to get the necessary support in parliament in Cyprus.

Halpenny notes that if a vote was unsuccessful today that could result in the Cypriot banking sector collapsing in the coming days. So, the parliament vote is the key near-term risk that markets will focus on this morning. Secondly, he adds that there will inevitably be legal challenges here. First from depositors arguing protection under the government scheme. Secondly, apparently domestic depositors will be offered equity in exchange, so foreign depositors may challenge that. Another risk is Russia – is Russia on board?

He finishes by writing, “In regard to the euro from here, we certainly are not surprised with the initial sell-off of the euro and there may well be more in the coming day or two (obviously the parliament vote is important here) but beyond then, we suspect that the euro may recover as market participants view this more as an isolated development rather than the trigger for a sustained period of turmoil and contagion. The IMF supported this measure and there must be a strong feeling that the financial markets are strong enough to weather this shock after an initial period of volatility. We tend to agree with that outcome and hence EUR/JPY in particular might meet with opportunistic buying at levels approaching 120.00.”

Forex Flash: Cyprus to dominate after shock ‘deposit tax’ announcement - BTMU

Derek Halpenny, European Head of Global Markets Research at the Bank of Tokyo Mitsubishi UFJ comments that the immediate focus at the outset of the London trading session is whether or not the deal will be passed in parliament in Cyprus.
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