Cyprus Walks Thin Line

Cyprus has appeared close to a bailout agreement for the past two days but the inability to close the deal suggests a growing risk that talks collapse. The euro has opened about 15 pips below Friday's close as the market awaits news on Cyprus. Weekly CFTC positioning data showed yen shorts scaling back. Both of our EURUSD longs hit their final targets of 1.30 and 1.3010, so did the long in GBPUSD. The other half of the GBPUSD dual trades are in progress. Full details are seen in the latest Premium Insights.

On Saturday it appeared as though a political leaders from Cyprus were close to securing a deal with the Troika that would tax deposits at the Bank of Cyprus by 20-25% while taxing other accounts at 4% and leaving pensions untouched. Since then, newsflow has grown quiet and scattered.A Eurogroup meeting was expected to be held on Sunday but it was repeatedly delayed and Dijsselbloem now says it has been rescheduled for 0500 GMT.

In addition, Reuters reported on Sunday that Cypriot President Nicos Anastasiades had threatened to resign in a heated exchange over a proposal to shut down two Cypriot banks. Any deal must be approved by Cypriot parliament and that adds another round of risks.

Overall, Cyprus is walking a thin line and running out of time. The risks run both ways for the euro but are beginning to skew toward the negative. If talks collapse, there is a substantial chance Cyprus leaves the eurozone.

In the near term, the market is free to focus on Cyprus because calendar is empty to start the week. The lone indicator of note is the UK Hometrack housing survey for March at 0001 GMT. In February, the survey rose 0.1% month-over-month.

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

EUR -44K vs -25K prior JPY -80K vs -94K prior GBP -61K vs -50K prior AUD +54K vs +23K prior CAD -65K vs -53K prior NZD +12K vs +19K prior CHF -10K vs -13K prior US Dollar Index longs at 54K vs 32K prior

Yen shorts were trimmed last week after falling to a 5-year low last week. The slight tempering of expectations may mean the window is open for fresh yen shorts. AUD longs jumped for the second week in a row, demonstrating the incredible power of positive carry but the lack of significant upside follow through from AUD shows there may be a rush to the exits if AUD begins to slide.