– Cypriot vote uncertainty keeps EURUSD rangebound
The market’s focus should remain firmly on Cyprus as uncertainty over the details of the bank deposit levy plan continues to linger. The postponed vote by the Cypriot parliament from yesterday is planned to take place today at 16:00 GMT. However, the latest headlines from the Cyprus defence minister on Tuesday morning suggest that the vote may be postponed further and there is talk of an alternative plan being proposed. One positive development was the confirmation on Monday by EZ officials that the thresholds and level of the deposit levy can be adjusted by parliament, as long as the total amount raised remains the same. Further headlines this morning suggest that progress is being made on proposals for altering the levy to reduce the burden on small depositors, which should in increase its likelihood of the bailout being passed. EURUSD continues to trade within its narrow range over the past 24 hours and Spanish and Italian yields are contained with Italian bond yields at 4.64% and Spanish yields still under 5%, suggesting that concerns about contagion remain muted. All-in-all, it is a close call whether the bailout plan will be passed in parliament today. We view that a “yes” vote would be very supportive for EURUSD considering that contagion to Spain and Italy appears to be contained. Furthermore, we expect a dovish FOMC press conference on Wednesday to be supportive for EURUSD. Meanwhile, the alternative outcome appears likely to be a further postponement of the vote, a scenario under which EURUSD is likely to continue to trade with a range as long as the 1.2880 support level remains in place.
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BNP Paribas