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Fundamental Morning Wrap: More Cyprus and Italy for a change, alteration of BoJ policy framework expected next week

FXstreet.com (Barcelona) - Confidence in the Eurozone, politics in Italy, the crisis in Cyprus and today’s respective scheduled re-opening of banks and capital controls, as well as Japan and the next BoJ monetary policy in April, are the main focus of this morning’s institutional reports.

EUR

Following the announcement of capital controls yesterday, Cypriot banks will re-open today and investors remain jittery in the near-term over the potential for developments in Cyprus, possibly leading to broader contagion materially undermining investor confidence in euro-zone assets, according to Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ. Emmanuel Ng of OCBC Bank sees the market already on disappointing March confidence indicators. “We continue to see potential for the EUR/USD to test lower with the gradually driving south and away from its 200-day MA (1.2884) and with the pair increasingly eyeing the 1.2680 neighborhood”, he wrote.
Lee Hardman also commented about Italy as political uncertainty remains a weight upon the euro in the near-term. He writes, “Centre-left leader Bersani is set to report back to President Napolitano today after holding talks with the centre-right parties and the Five Stars Movement in an attempt to form a government. Those talks don’t appear to have gone well leaving Italy apparently no closer to forming a government”.

JPY

Next week, the BoJ will meet and much expectations surround new Governor Kuroda, with the situation also compounded by increasing apprehension on the risk appetite front. Through a global client survey, Nomura Strategists see the market expecting a change in BoJ policy framework as early as next week, the consolidation of two JGB buying operations (APP and Rinban) and the scrap of banknote rule next week. Further, JPY10trn of additional asset purchases are expected in 2013, with increase of the duration of JGB purchases to 10y, are expected to be announced. Finally, they note that investors see more upside in USD/JPY and their positions are still tilted toward USDJPY long. Emmanuel Ng of OCBC Bank wrote: “In a nutshell, we think the near term trajectory of the USD/JPY may boil down to just how much the dovish expectations of further monetary easing have been priced in, with BOJ governor Kuroda chiming in almost daily. In the interim, the pair may fade any upticks to 95.00 with support expected towards 93.30 and then at the 55-day MA (92.89)”.

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