Not much of a range overnight as traders digested the comments of FED Chairman Bernanke regarding the US economy. There were no surprises as the FED left rates unchanged as well as asset purchases at $85 billion. While acknowledging an improvement in the US economy, Chairman Bernanke voiced concern over the still high unemployment rate.
He stressed that “we need to make sure the that this improvement is not temporary”. Economic projections were revised modestly lower, with less growth projected, but a better job market as well.
In Japan, the government reported a monthly trade deficit for the eighth consecutive month. The deficit was reported at JPY 1.1 trillion in February, worse than the anticipated JPY 1 trillion. Exports fell -2.9%, while imports rose 11.9%. These numbers show the impact of the recent fall of the JPY have not yet been seen and move to support the Bank of Japan to weaken the JPY in order to boost exports. USD/JPY tested the resistance level of 96.00 overnight, before falling back into the mid 95.70 area. Support for USD/JPY is at 95.60, and 95.30. A break of 96.00 will target 96.75.
EUR remains under pressure. The Cyprus situation continues and we’ll get to that in a moment, but German PMI numbers have just been released and they were not very good. German manufacturing PMI fell to 48.9 in March missing the expected 50.5 number and lower than the previous release at 50.2. Services PMI also fell to 51.6 from 54.7 in February. These numbers quickly pushed the EUR through the 1.2900 level, but there has been some buying interest seen at the 1.2890 level. Support for EUR is at 1.2880, while resistance remains at 1.2960. Needless to say the pressure on the EUR will remain as the Cyprus situation continues to weigh on the currency.
As far as Cyprus is concerned, talks continue between Cyprus and Russia as Cyprus looks for alternatives for financing as bank levy legislation in the country does not appear to be gaining any support. Cyprus is apparently offering the development of natural gas reserves surrounding the country as part of an agreement for Russian financial aid. In Cyprus political leaders are looking for alternatives to the bank levy and are considering nationalizing pension funds. Banks will stay shut in Cyprus until next week in an attempt to avoid financial chaos.
EU officials remain concerned with the situation, but are also remaining firm in their resolve that Cyprus needs to come up with a plan in order to continue to receive bailout money. The EU is not happy with Russia being involved in these negotiations and that is creating some tension. Russia’s involvement stems from the fact that Cyprus is a haven for billions of EUR that have been placed there by Russian businesses and other individuals. This is one of the main reasons EU countries such as Germany want bank depositors contributing to the bailout.
This situation is not going to end soon. The EUR remains under pressure and a test of the 1.2880 level will not surprise. I expect continued comments from Europe this morning, but nothing that will reverse the EUR trend.
Further reading: Holding out for Plan B
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