EUR fell sharply overnight after news of the EUR 10 bln Cyprus bailout deal, which will be structured with an unprecedented bank levy on depositors to raise around EUR 6 bln. EUR found a modicum of support in Europe amid reports that Cyprus may be willing to adjust some of the initial proposals, which included a 6.75% tax on deposits up to EUR 100k. It is not clear whether parliament will vote on the proposals today amid wire reports that it may be delayed until Tuesday. Cable edged back over 1.5100 on option related support and more supportive comments from BoE officials after Governor King talked up the pound last week. JPY backed away from overnight higns on bargain hunting, which left USD-JPY close to 95.00.

[EUR, USD]
EUR-USD recovered to trade back over 1.2950 versus new 2013 lows seen in late Asia at 1.2882. According to wire reports Cyprus will make new deposit tax proposals of 3% on deposits up to EUR 100k, a 10% levy on deposits up to EUR 500k and a 15% levy above EUR 500k. The news has offered some semblance of stability for the EUR, though there is still likely to be residual uncertainty over other euro member states. From a technical perspective, the gap lower at the Asia Pacific open and severely oversold momentum studies pointed to some corrective action after the 200-dma held at 1.2872. The Cyprus central bank governor said ECB has promised to give Cyprus liquidity if parliament approves the proposed bank levy, which is due to go to vote at 14:00GMT.

[USD, JPY]
USD-JPY rebounded out of 94.35 at the European open to trade at rally highs just over 95.10. The EUR recovery was the catalyst for USD-JPY gains after EUR-JPY reached 123.35, which compared with lows around 121.50 in early Asia. USD-JPY dropped sharply at the Asia Pacific open from 95.30 to the 94.10, where very strong Japanese support emerged. Short term accounts loaded up on fresh longs as the BoJ policy outlook fueled bargain hunting. The technical backdrop is still pointing to higher levels, though recent yen shorts got a scare overnight from the Cyprus news and interest could drop off should USD-JPY reach Asia opening levels.

[GBP, USD]
Cable benefited from EUR recovery and traded out of 1.5075 back up to the 1.5140 region. Comments from BoE's McCafferty indicated that policy makers are not keen on further GBP weakness Adding to the supportive backdrop was today's 1.5100 expiries, which are up to GBP 1.5 bln and fueled gamma hedging on dips. Further upside momentum is likely to be limited due to the size of these strikes and 1.5100 could attract as the session progresses. Meanwhile, sources close to Qatar denied reports in the Sunday Times that it was planning an GBP 8 bln bid for Marks and Spencer, but it did not impact price action. Intra-day action should focus on eurozone developments, though there is a lot to digest for U.K. traders this week, including the BoE minutes on Wednesday and the U.K. Budget. BoE Governor King reiterated that he still sees a case for more asset purchases to aid the U.K. recovery.

[USD, CHF]
EUR-CHF closed the overnight gap lower. It rallied from 1.2170 in early Europe to levels over 1.2250. The more stable tone was in part due to EUR-USD short covering. There was also evidence of bargain hunting from local names benefiting from EUR-CHF's move under 1.2200 for the first time since late February. SNB's Moser gave the market a timely reminder on the potential for negative interest rates. This is unlikely in our opinion and simply a ploy by Swiss policy makers to head off any heavy pick up in swissy inflows. However, it did trigger a EUR-CHF spike from 1.2215 to 1.2290 highs before prices settled back into the 1.2230-50 zone.

[USD, CAD]
USD-CAD headed back towards 1.0250 as the move out of risky positions in Asia weighed heavily on the commodity bloc currencies. The near-term picture will be dependent on the risk backdrop and on an intra-day basis it looks likely that dip buying will persist. Support is noted into 1.0220 and the 1.0200-10 area. Offers increase in size from the 1.0270-80 region.