Cyprus: Low Volatility and Risky Plans

(This is an excerpt from an article I originally published on Seeking Alpha on March 17, 2013. Click here to read the entire piece.)

{snip}

While it is still far from clear that the risky bailout plan for Cyprus will pass the country’s legislative body – a vote that was scheduled for Sunday has been postponed to Monday at the time of writing – it does seem clear that the unprecedented plan to seize money from even insured savings accounts is causing worries about financial contagion. {snip}

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While many factors played into the construction of the current plan, I am assuming that important enablers are the low level of volatility in global financial markets and the related notion that the eurozone has finally conquered tail risks for its currency. These presumptions of reduced risk give rulemakers a (false?) sense of security and a larger platform for taking risks. On the surface at least, it seems the financial system has plenty of buffer to contain and absorb any fallout.

Cyprus’s small size probably contributes to the notion that whatever happens in the country can be well-contained. {snip}

So, contagion does not respect size and what seems small now could certainly loom very large in the future. In the currency markets, this means opportunity. {snip}


EUR/GBP finally breaks down below its 50-day moving average
EUR/GBP finally breaks down below its 50-day moving average

{snip}

Of all the euro-impacted currencies to watch during whatever unfolds, I will focus again on the Swiss franc (FXF). {snip}


2013's rally for EUR/CHF finally looks ready to completely reverse, completing the work of February's plunge
2013's rally for EUR/CHF finally looks ready to completely reverse, completing the work of February's plunge

Above all, I think gold (GLD) should shine here. {snip}


GLD has struggled for almost two years to regain its bullish tint, but it has held recent lows very well.
GLD has struggled for almost two years to regain its bullish tint, but it has held recent lows very well.

Source of charts: FreeStockCarts.com

Through it all, traders must keep in mind BOTH the bearish and bullish opportunities that renewed volatility present. {snip}

Finally, here is a cartoon I found from twitter that surely expresses the feelings of those in Cyprus:


European Union forces Cypriot banks to rob its customers
European Union forces Cypriot banks to rob its customers

Be careful out there!

(This is an excerpt from an article I originally published on Seeking Alpha on March 17, 2013. Click here to read the entire piece.)

Full disclosure: long GLD

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