Morning Report - Wary awaiting Cyprus, watch 93.98 on USDJPY

Will they won't they. What will they, what won't they. Cyprus Cyprus it's all about Cyprus. 

The Cypriot issue continues to dominate the minds of the market and the pundits as the rumours fly on what the new deal to haircut deposits might be. Reuters reported over the weekend that it was 4% for the "guaranteed deposits below €100,00 and a decent old 20% haircut for those above this threshold. But this morning it is still unclear what the "actual" deal, if reached, is going to look like. 

What we do know is that the EU meeting was delayed and the Cypriot President jumped on a plane to go visit and no doubt prostrate himself in front of the Bullies of Brussels. The reason I say that is because the argument that Cyprus is so small at about 0.2% of EU GDP and thus they can push around runs both ways. 

Why not in the interest of the wider Euro project, why not in the interest on building on Mario Draghi dramatic and successful intervention last year to halt the panic in financial markets simply give Cyprus the money it needs and move on. The Why Not is simple - German election and Russian Oligarchs and of course Cyprus' tiny size. 

But in dealing with the Cypriots in the manner that has occurred, by allowing capital controls within the EU, with allowing the stealing of "guaranteed" deposits - or at least letting that Genie out of the bottle - the EU projects is as much as dead. My personal preference is fix them or kick them out at least then markets will know what they are dealing with if we end up getting to Italy or Spain. 

But as the week starts in Asia we are still uncertain of the outlook. 

The Euro and Aussie which rallied into week's end are off a little in trade this morning as we await some sort of guide as to what is going to happen. Fundamentally Cyprus doesn't matter except if you have money parked there out of harms way and the prying eyes of tax authorities. Indeed the death of Boris Berezovsky has prompted questions about where his money might have been and if it played any part in his death. But none of that helps us with markets but it seems the chances of some sort of adverse income remains a high probability at this point given the deadline the ECB has set for today.

The question for the Aussie then is whether it catches a bid tone from the natural process of taking money out of the European banking system and parking it in jurisdictions where it is safe from the chances of governmental confiscation such as Australia. Alternatively there is a chance that if markets go "risk off" this bid tone evaporates until markets get a clearer picture of what is going on. At times like these where the outlook is uncertain I use my charts which suggest that if the Aussie breaks up above the high last week of 1.0457 then its on its way to 1.0512/32 with solid support around 1.0392 which should hold for the moment unless something catastrophic happens. 

The Euro rallied Friday as you can see in the Chart below and it has moved away from the 200 day moving average again but as yet has not taken out our fast moving average. The chances are building however and while we believe this Cyprus mess means Euro goes substantially lower in time more aggressive traders who think that there will be some sort of positive resolution in the Euro's favour could use the 200 day moving average as the stop on any longs. Euro is sitting at 1.2957 this morning with the 200 day moving average at 1.2864. If this level gives way it is 1.2650 here we come.

USDJPY is also looking interesting on the charts. The uptrend line from the start of the rally comes in 93.98 which is also around the level of our slow moving average - a break of this level would open a much deeper retracement and it is worth noting the outlook for the Nikkei with 12184 the key level to watch on the downside in MT4 terms.

On Stock markets the weakness in the IFO survey in Germany hit the DAX while the FTSE managed a small rally. In the US as the week ended and markets became more hopeful of a positive resolution to Cyprus markets closed the week on a better note the Dow closed up 91 points or 0.63%, the Nasdaq rose 0.70% and the S&P 500 was up 11 points or 0.72% to 1,557.

On Commodity markets Gold is losing momentum from its rally and although we have been short term bullish our indicators are suggesting that last week's high around the $1,616/17 region and just below our target of $1619 might be it for now. We'll have to see how things pan out but only a break of the highs, which our indicators still suggest is more likely than not, would open up further topside.

Elsewhere on commodity markets Nymex crude rallied 1.36% to $93.80 Bbl, gold was 0.47% lower the more volatile precious, Silver, fell 1.76% to $28.65 and copper was up a little less than 1%. On the Ags corn fell 0.91%, wheat rose 0.14% and soybeans fell 0.59%.

Data

Cyprus is the key over the next day or so so watch that closely - might be a time for small positions.

Economic data wise the Chicago and Dallas Fed manufacturing indices are out and Ben Bernanke is talking.

Twitter: Greg McKenna or @macro_business