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The Euro gaps sharply lower as the week opens on news that deposit tax is included as part
of Cyprus bail out deal. Eurozone leaders and Cyprus agreed over the weekend that, in
order to be eligible for an international bailout, the island country will need to raise
up to 5.8 billion euros through taxing deposits. That includes up to 6.7% on deposit amounts
below 100,000 and 9.9% on deposits above that. Understandably there were reported scenes
of Cypriots lining up at ATMs. The move raised concerns that Eurozone leaders are willing
to risk market disruption, and even to an extreme, banking collapse, to avoid sovereign
defaults. Markets are concerned that the news would unease depositors in other peripheral
countries. Meanwhile, triggering fund flows to countries with lower risk, like Germany,
or even out of the Eurozone all together. The cypriot parliament will vote on the tax
proposal today and there is still a risk that it could be rejected: In short, the situation
is chaos. Meanwhile the Aussie is also weighed down
as Treasurer Swan said that the country is facing a "massive hit" to government revenue.
Swan also warned that this will "inevitably continue to impact beyond the current year."
Swan is worried that the government does not "put growth and jobs in the economy at risk
by cutting further and deeper in the near term to fill in a hole in revenues." Based
on figures released last week, Australia's deficit for the first four weeks of 2013 rose
to 4.6 billion Australian Dollars and took the total short fall for the fiscal year to
26.8 billion. It recorded a 44 billion dollar deficit last fiscal year.
Latest CFTC data showed a sharp deterioration in yen positions on March 12th compared to
the prior week. Indeed, speculators were clearly building up short positions again and the
position is threatening to surpass last year's largest net shorts of 94,400. Meanwhile, Positions
in Sterling and Canadian dollar continued to deteriorate too. Euro positions stabilized
a bit with net shorts reduced slightly to 2,700 from 26,100. Yen net shorts jumped sharply
to 93,800, just an inch from last December's 94,400. Sterling positions continued to deteriorate
with net shorts jumping to 49,800, from 43,800. That's the eighth straight week of deterioration.
Canadian dollar positions deteriorated slightly to 53,400 net shorts, from 46,700. That's
also the eighth straight week of deterioration. Aussie net longs rose back to 23,300, from
7,000, but it's still way off January's high of 97,000.
US PPI and Unemployment claims are the major market-movers along with that Cypriot vote
later on in the day. For all the latest forex news affecting the
markets join us at forexcurrencytradingonline.co.uk