Forex Flash: Talk of EU plans for Bail-in Bailout feature for over 100k deposits - BTMU

FXstreet.com (Barcelona) - Derek Halpenny, Global Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ notes that much along the lines of the comments from Eurogroup head Jeroen Dijsselbloem Reuters is reporting that the EU is pushing ahead with bank bailout legislation that includes a deposit bail-in feature on deposits over the EUR 100k level.

He writes, “So a template has indeed been set and the long term consequences could well be that depositors or “investors” will view a euro in one country different from another, which surely will impair the flow of capital that could have long-term negative repercussions for the solidity of monetary union.” He adds that today, we are also likely to hear details on capital controls in Cyprus which the Cypriot authorities assure us will only last a few weeks. Further, Halpenny adds that the EU has taken a calculated gamble that the financial markets will see Cyprus as unique and hence the disruption to the improvement to financial market conditions will be brief. He finishes by writing, “We suspect that the EU will be proved correct for now and continue to see potential for the euro to rally back above the 1.3000 level against the dollar. Further out though, the weak fundamentals in Europe – which wont be helped
by the Cyprus deal, will result in downward pressure on the euro returning.”