Cyprus Banks Reopen Eyed, Lower Italian Debt Demand Weighed on Euro - 28.3.2013

Investor’s eyes remain on Cyprus where banks are reopening today following 8 working days of closure. Restrictive measures on capital transfers will be applied by the Central bank of Cyprus like maximum withdrawal of €300($383) per day and overseas withdrawals with credit or debit card are limited to €5000 per month. The common currency dropped to hurdle at 1.2752 yesterday against the US dollar on fears of bank run in Cyprus as well as due to lower demand for Italian bonds at the auction. Bid to cover ratio on 10Y Italian bonds was 1.33 times compared to 1.7 ratio at previous sale. Political deadlock in Italy for one month now is raising risks on Eurozone and increases selling bias on the common currency. Italian 10 year bond yields at the secondary markets edged up earler today at 4.817% increasing by more than 20bp while German 10 year bonds decreased to 1.263% falling by almost 8 bp, since Tuesday. In addition latest CFTC data indicate that last week the net short positioning on Euro mounted to $7.2 bln. Should the bearish sentiment keep accumulating we expect the currency pair to continue as low as 1.2665, technically though in the intraday is likely to remain neutral due to oversold stochastic. Elsewhere due to approaching Easter holiday at the 31st of March, trading is getting quiet in general. The sterling yesterday sank to 1.5092 versus the greenback on increase by more than expected of the Current Account deficit and 4Q GDP contraction confirmed at 0.3%.