FX markets are trading under the shadow of eurozone uncertainty after Cyprus work on another plan to raise the required EUR 5.8 in order to receive a bailout following yesterday's failure to pass the bank deposit levy in parliament. It seems likely that some small despositors will be exempt, but the psychological damage is still likely to trigger significant capital outflow when banks reopen. EUR will trade tentatively ahead of more concrete news, but has shown some signs of stability today after it hit new 2013 lows under 1.2850 on Tuesday. USD-JPY will remain rangebound due to a very large 95.20 vanilla expiry, which is related to large European digital option exposure that is also rolling off today. GBP will remain in a holding pattern into the BoE minutes and the U.K. Budget. Expectations for further policy stimulus rose a notch earlier in the month after a 6-3 vote for more easing. The Budget should see the government raffirm its austerity drive. There is also a risk that Chancellor Osborne could give the BoE more flexibility on policy, which could potentially weigh on GBP.

[EUR, USD]
EUR-USD tested the 1.2850 region in early Asia trade. However, yesterday's lows held and it recovered to 1.2900 by early Europe on light short covering. The surge in China's SSEC was a positive influence, although there was no appetite to build large EUR positions, with the situation in Cyprus unresolved. The president is expected to meet party leaders to discuss other options and the finance minister is in Russia to negotiate more support. It still has to raise EUR 5.8 bln as part of its EUR 10 bln bailout agreement or could be threatened with a eurozone exit.

[USD, JPY]
USD-JPY traded at at 94.85 early on as equity market weakness weighed due to JPY cross selling pressure. EUR-JPY headed to the 122.00 region early on, but then recovered as regional accounts keyed off a decent rally across China's SSEC. The cross headed back to 122.00 and USD-JPY edged back into the 95.00 region. Large expiries are rolling off today at 95.20 and include a vanilla strike and a European digital style option, which could provide support on dips. Japanese players are still looking to buy dips here given the BoJ policy outlook and there is evidence that good short dated JPY put demand went through over the last few sessions in anticipation of more policy easing.

[GBP, USD]
Cable is trading close to 1.5100. GBP traders are reluctant to add positions ahead of the BoE minutes and U.K. Budget. Since BoE Governor King talked up sterling last week Cable has found good support from 1.5075, but movement over 1.5150 is still seen as a selling opportunity.

[USD, CHF]
EUR-CHF has traded in lock step with EUR-USD and headed back over 1.2200 after bottoming out around 1.2180 after yesterday's European close. There is evidence that safe haven swissy inflows have dropped off as concerns over eurozone contagion abated after the Eurogroup reaffirmed its commitment to the guarantee on deposits up to EUR 100k. However, while the situation in Cyprus is unresolved the EUR-CHF upside should remain limited.

[USD, CAD]
USD-CAD consolidated Tuesday's gains. It moved higher in the aftermath of the mixed Canadian manufacturing data and uncertainty over Cyprus to reach 1.0282 highs. Offers noted from 1.0280 to 1.0300 fueled light selling pressure, but the downside should remain limited from 1.0250 to 1.0230 while equity markets struggle.