Currency Markets Open After Cyprus, And Some Of The Most Popular Trades Out There Are Getting Slammed
The euro is down 1.1 percent against the U.S. dollar and off a staggering 2.2 percent against the yen.
Meanwhile, the yen is also up 1.1 percent against the dollar.
This could clearly develop into a risk-off move for everyone piling into the short-yen trade.
As Michael Block of Phoenix Partners Group told Business Insider recently, "When this [Japanese rally] has a blip, a lot of folks long credit (including ones who are long structured products that are short these CDS and indices) are going to feel pain...and guess what?? The same folks are also short yen...long U.S. stocks...you get the picture. CORRELATION WILL BE THE DEATH OF US AGAIN."
The EUR/JPY currency pair has tracked risk assets well recently, so this may be a sign that the broader rally in risk can unwind, depending on how much "contagion" the Cyprus deal causes.
BofA Merrill Lynch's Steven Lee writes in a note to clients from Hong Kong:
The Wellington Open kicks off both EURUSD (~1.2945) and USDJPY (~94.25) off sharply from NY/Fri closes, amidst uncertainty with the Cypriot Parliament’s vote on a deal reached with the Troika on the deposit levy.
BofAML’s Thanos Vamvakidis notes that the parliamentary vote in Cyprus on Monday afternoon will be critical and, upon approval, the extent of bank deposit withdrawals when banks open on Tuesday.
The bottom-line from Thanos: “The government may not have the votes. As a result, the date of the vote is not known with certainty yet, but the official date is Monday 2pm London time. Banks will remain closed if the vote does not take place by Monday (Monday is an official holiday). A negative vote will be a shock with implications beyond Cyprus.”
Citi analyst Steven Englander said earlier, "The developments in Cyprus will lead to EUR selling and USD, CHF, GBP, NOK and SEK buying (in that order)."
The euro is barely moving against the Swiss franc (CHF), but is off 1.1 percent against the pound sterling (GBP), 1 percent against the Norwegian krone, and is actually up 0.1 percent against the Swedish krona.