The biggest looser (after Cyprus) today has been the EUR.USD. This was the dream-fade-trade for Forex traders. The news flow from early Monday morning when the agreement was reached was handed easily to “Europe”. All is well, Cyprus is fixed. Then as often happens one of the members didn’t play by the script. The Eurogroup head and Dutch Finance Minister, Jeroen Dijsselbloem, says Cyprus is a Template for restructuring… That sent the market into a downward directional tizzy which it has yet to recover from. He’s since recanted, clumsily.
The bailout-bailin looks like this: Cyprus’s 2nd largest bank will be shut down and those insured depositors of <100k Euros will be moved to the Bank of Cyprus. Anyone with >100k Euros is looking at a nice big loss. Cyprus will have to find 4.2 billion euros from the uninsured.
Russia reacted patiently, they’re obviously playing a long game here but must be under some serious pressure from the rich and connected who keep funds in Cyprus.
So have we sailed through the worst of it?
I think my last post is still worth thinking about. Small savers have been protected, yet the Cyprus banks haven’t opened yet, and Russia hasn’t really responded. They are working on that strategy and probably giggling. Don’t forget the cultural ties to Cyprus, natural gas, and don’t forget Syria, the Russians are under pressure to stop supporting Bashar al-Assad and the west has effectively stolen 4 Billion Euros from well-connected Russians. That will be hard to swallow.
Might the Russian response to Cyprus add some more turmoil into the markets? I couldn’t say, but the reasons to stay cautious on the European “Problem” are NOT fading as quickly as the Euro.
Megan always does a good job, her article is worth a read.