Contagion Risk Persists, Euro Offered

Contagion Risk Persists, Euro Offered

The risk appetite remains weak as the contagion fears on the Cyprus deal spills over the Euro-Zone. The Cypriot central bank announced that the banks will remain closed through March. Euro gave-off the gains from Monday's relief-rally and hit 1.2830 in NY, its lowest since November 12'. EURUSD traded in a tight range in Asia between 1.2844/82.

The Asian equity markets registered a weak trading session. The new BoJ government said that the monetary policy has not been enough so far and reminded that BoJ will do whatever it takes to fight back the long-lasting deflation and achieve the 2% inflation target in two years. The Policy board is likely to buy Japanese JGBS up to five-year maturity and aim the price stability rather than the FX stability.

The Nikkei 225 retreated 0.6 overnight, Shanghai's Composite lost 1.2%, Kospi index gained 0.3%, Hang Seng remained little changed. In New Zealand, the trade surplus greatly surprised to the upside in February. The country registered Nzd414mn surplus versus Nzd12mn deficit expected due to the combination of increasing exports and decreasing imports.

JPY dropped in NY session as the risk-off sentiment triggered a flight to safe-haven currencies. USDJPY dropped to 93.53 amid Dijsselbloem said that the Cyprus deal was a template for the bank resolutions in the region. USDJPY crossed its 21-day MA to the downside, which might be a signal of further consolidation of the recent correction. JPY and its crosses were slightly bid in Asia, but the JPY trading remained on sidelines ahead of the fiscal year end in Japan at the end of this week.

In US, the Fed President Bernanke rejected the idea of a currency war and reaffirmed that the easing monetary policy aims to boost the domestic economy rather than protectionism. The S&P500 hit 1,564.91, its historical high yesterday in New York, yet failed to extend gains in the current risk-negative environment.