In a well-established tradition of previous EU bailouts, financial aid to Cyprus proved to be far from a done deal. Lawmakers rejected a plan to tax (or seize) up to 10% of deposits in local banks. This move may put in jeopardy the EUR 10 billion that the EU and the IMF agreed to loan to Cyprus, with additional EUR 6 billion expected to come from the tax. Currently, it is not clear if another version of the bill will be considered in coming days, or how the EU might respond. There is talk about Russia supplying the needed funds to the government of Cyprus, but who knows? For the next few days, we should be ready for all kinds of plans and rumors, each with potential to move currencies.
Not that the situation on Cyprus is the only catalyst – there are more. On Wednesday, the Federal Reserve will conclude its policy meeting, another highly anticipated event. While most analysts expect to see interest rates and the asset-purchasing program unchanged, the focus will be on tone of the FOMC statement, and Bernanke’s press conference. Markets will pay attention to possible details of the eventual exit strategy from the current accommodative environment, as well as FED’s stance on unemployment and other economic numbers. Whatever happens, a jump in volatility is likely following the meeting.
I am still shorting the Yen pairs, looking for much more downside. Today the, the CAD-JPY was the weakest of the, although that could change tomorrow. However, the price here established a tempting support level on the hourly chart, not necessarily visible that well in the other crosses. If we see a more weakness, I would like to get in at 92.07, seeking about 100 pips from this setup.
With the FED announcement on the horizon, I will avoid short-term trading, or keep it so short that I can get out before the event. Do not want to sit on too many positions going into it. That said, if we see a clear trend emerge following the release, I might want to jump in, even if that also would be short-term trading – very late in the day.