EUR fell sharply after news of the EUR 10 bln Cyprus bailout deal. It was the structure of the deal that shocked markets after a bank levy was proposed on depositors to raise around EUR 6 bln. An emergency parliamentary sitting will vote on the package today, which will see a levy of 9.9% on desposits greater than EUR 100,000 and a 6.7% levy on deposits below. EUR-USD fell from 1.3080 to 1.2885 and EUR-JPY plunged from 124.65 to 121.50, which weighed heavily on USD-JPY. The dollar pairing slumped from 95.30 to 94.10, but backed up to 95.00 over the Tokyo morning on bargain hunting. However, it could not sustain higher levels and headed to 94.30 by the Tokyo close. Elsewhere, AUD-USD fell back from 1.0410 to just below 1.0350, while Cable pulled back from 1.5140 to 1.5070.

[EUR, USD]
EUR-USD traded at new 2013 lows under 1.2890 after the Cyprus bailout news raised concerns over contagion risk after the shock bank levy proposal. After the EUR plunge from the 1.3080 area there is tentative demand going through into 1.2880 from standing corporate bids and short term accounts playing the range. Interest for EUR may be low today until parliament votes on the Cyprus deal. There are fears that this could lead to fresh contagion in the euro-area, but we do not expect these kind of measures to impact other euro states. The deal was structured in a way to hit investors that use Cyprus as a tax haven, where bank deposits account for 800% of GDP.

[USD, JPY]
USD-JPY experienced very choppy trade after the negative reaction to the Cyprus bailout news. It fell sharply to the 94.10 area after starting the Asia Pacific session around the 95.30 region. Japanese accounts were buyers on dips, which helped it back to the 95.00 region, but the weight of position unwinding and general flight to safety forced it back towards 94.30 by the Tokyo close. There was evidence of bargain hunting going through as the European session got underway and there is also good local name support between 94.10 and 93.80, which could shore up the downside ahead.

[GBP, USD]
Cable is weaker under 1.5100 on USD strength, but losses were absorbed to degree after EUR-GBP fell from 0.8645 to 0.8530. Cable may be limited around the 1.5100 due to option expiries, which are reportedly up to GBP 1.5 bln. Sterling benefited last week after BoE Governor King made verbal intervention to support the pound and was also more upbeat on the economy, though still backed more asset purchases ahead. The U.K Budget should not be a big market mover, with the government likely to reaffirm its austerity drive.

[USD, CHF]
EUR-CHF dropped from 1.2265 to the 1.2170 area after the euro suffered on the Cyprus bank levy on deposits. The move back into the swissy came in low volumes at the Asia Pacific open and as liquidity rose it headed back to 1.2200. There are signs that EUR-CHF could potentially close the gap and push back on a 1.22 handle. However, the near-term outlook will be directly influence by euro developments and whether Cyprus pushes through the proposed tax.

[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.