* Euro unable to shake Cyprus uncertainty
* Single currency hovers near Tuesday's 4-month trough
* British budget, Fed meeting and Bernanke presser all ahead
By Masayuki Kitano
SINGAPORE, March 20 The euro hovered near a
four-month low on Wednesday after Cyprus rejected terms of a
proposed bailout, creating uncertainty about the country's
financial future and reviving fears about the stability of the
Cyprus overwhelmingly rejected a proposed levy on bank
deposits as a condition for a European bailout on Tuesday,
throwing international efforts to rescue the latest casualty of
the euro zone debt crisis into disarray.
The general assumption in markets, however, is that the
European Union, as so often before, will hash out a last minute
deal that keeps Cyprus in the single currency.
"European officials have repeatedly come out with last
minute plans to save the day, and I think down at these levels,
that's a major reason why the market isn't chasing it
aggressively," said Callum Henderson, global head of FX research
for Standard Chartered Bank in Singapore, referring to the
euro's moves against the dollar.
"But the longer that Europe doesn't come up with a plan B,
the greater the risk of a major slide in the euro," he added.
The euro held steady at around $1.2875, holding right
near its 200-day moving average. On Tuesday the euro had dropped
below that support and touched a four-month low of $1.28435 on
trading platform EBS.
Further losses were prevented only after the European
Central Bank said it was committed to providing liquidity to
Cypriot banks within certain limits.
"On technical charts it seems as if the euro has made a
downside break," said a trader for a Japanese bank in Singapore.
"Things could get scary if speculation grows about the
potential for spillover effects," the trader said, referring to
the turmoil in Cyprus.
The euro's lowest point on Tuesday marked a decline of more
than 6 percent from its early February peak of $1.3711.
One factor that could support the euro in the very near term
is market positioning, said Jeffrey Halley, a trader for Saxo
Capital Markets in Singapore.
"We think the danger is actually up in Asia today as Europe,
the USA, the rest of the world, have clearly gone home short,"
he said, adding that stop-loss euro buying orders were
accumulating on the top side.
The yen edged higher in thin market conditions, with
Japanese financial markets closed for a national holiday.
The euro slipped 0.3 percent to 122.27 yen,
clinging above support at its 55-day moving average that now
comes in at about 121.99 yen.
The dollar fell 0.2 percent to 94.97 yen.
The market is wary of any comments from Haruhiko Kuroda, who
becomes governor of the Bank of Japan on Wednesday.
Expectations are high that Kuroda will quickly embark on a
much more aggressive monetary policy to fight deflation, perhaps
even before the BOJ's next scheduled policy meeting in early
Sterling edged up 0.1 percent to $1.5097 ahead of
the release of the UK annual budget later on Wednesday.
Investors are wary that UK finance minister George Osborne
could announce a change in the Bank of England's (BoE) remit to
allow more leeway on inflation targeting, paving the way for
further monetary easing.
The focus is also turning to the end of a two-day U.S.
Federal Reserve policy meeting on Wednesday. The Fed looks set
to keep buying $85 billion a month in mortgage and Treasury
bonds in an effort to encourage investment and bolster a weak
As ever, the market will be hyper sensitive to any hint on
when the Fed might consider slowing its asset buying plans.
The Fed is due to provide an update to its economic
forecasts on Wednesday, and Fed Chairman Ben Bernanke is due to
hold a news conference.
"The tone of Bernanke's press conference is likely to be
similar to his recent speeches -- encouraged by the improvement
in recent data but cautious about the outlook and content that
the effect of the ongoing asset purchase program continues to be
a net positive for the economy, despite risks related to
financial market stability," wrote analysts at Barclays.