It’s still amazes me sometimes how what would seem to be a small development can have such an explosive impact on the world. Over the weekend, Cyprus agreed to a €10 billion bailout deal. While this seems small relative to the hundreds of billions loaned to Greece, Ireland and Portugal, the terms of the deal have had major ramifications erasing several times that off the global market cap overnight. What spooked the markets so badly with this arrangement is that bank depositors (ie the public) is being asked to take a haircut by paying a tax on their depositors. Previously it had been private lenders who had been forced to take haircuts and bailout funds had come from governments not individuals. This tax grab has rocked faith in the European banking system to its core. After all, depositors have no influence on the operations of the banks they deal with. Cyprus has declared a bank holiday today and runs a real risk of a run on the banks when they reopen, the exact thing that bailouts are supposed to avoid. With austerity already under fire as a failed policy that traded a banking problem for a wider societal unemployment problem this bailout runs the risk of further turning the European public against the EU project, particularly in Spain and Italy where individuals wake up this week wondering if they will be next to see their savings taken away from them. The street has given a huge thumbs down to the arrangement sending major markets across Asia Pacific down 2% or more. In Europe this morning, Spain’s IBEX and Italy’s MIB are both down about 2%. EUR has lost a big figure in early trading while GBP has outperformed as the UK’s role as a somewhat more stable relative haven becomes recognized again. Meanwhile, gold has broken out of a five month downtrend against EUR, and treasury yields for Greece, Portugal, Italy and Spain have started to rise indicating that capital is starting to flee Europe one again. The violent backlash to this deal has led to some backpedalling already. There has already been chatter about renegotiating the deal to lessen the impact on smaller depositors The current deal has deposits of under €100K at 6.75% and over €100K at 9.9% to a three tier plan of 3% under €100K, 10% for €100K-€500K and 15% over €500K. The Parliament of Cyprus has put off a vote on the plan to Friday from today. EU finance ministers agreed to extend the payback period for the Ireland and Portugal bailouts but this has been ignored as sleight of hand. On top of all this Russia, who had previously indicated interest in helping Cyprus has yet to sign on the dotted line. This supposed bailout deal which may or may not change has created significant uncertainty that could create significant volatility and opportunities for trading over the next several days at least. On top of the problems with the deal itself, it comes at a difficult time for markets in general that could amplify the impact of whatever happens. In the last few sessions, upward momentum in stock markets has been fading and signs of vulnerability have emerged. The Cyprus mess appears to be the straw that may break the back of this exhausted rally and could send stocks into an overdue correction. Markets had become quite complacent lately and this shock has the potential to lead to a dramatic reconsideration and repricing of risks. While we have already seen one short sharp correction that quickly faded this month, this one could have more staying power. After all, one economic data point can quickly be countered by another, regaining the trust of Europeans in the safety of their bank deposits is a whole other ball game. Economic News Significant economic announcements released overnight include: There were no major economic announcements over the weekend except the Cyprus bailout deal. Economic announcements due later today include: 10:00 am ET US NAHB housing market index street 47 vs previous 46 North American indices US30 is breaking down, taking out its 10-day moving average. RSI falling back under 70 from overbought territory also sends a negative technical signal. With 14,450 broken, next support appears near14,325 then 14,130. SPX500 is breaking down today, gapping lower to start the week and falling back into its megaphone top pattern. Next support appears near 1,540, 1,530, 1,510 and 1,485 with resistance emerging near 1,550. NDAQ100 is breaking down today, falling through 2,780 back into its old trading channel with next support near 2,700. RSI stalled short of 60 and has rolled down suggesting downward momentum building. US SmallCap 2000 looks vulnerable here. Index stalling late last week combined with RSI rolling down out of overbought territory suggests momentum turning negative. Break of 935 would confirm a correction with next support near 925 then 900. Canada60 could be vulnerable to a drop within its current trading channel with key support in the 725-730 area and resistance in place near 745. European Indices UK100 gapped down to start the week but successfully tested 6,350 trend support and has rebounded. It needs to close the gap and clear 6,480, however, to call off an emerging correction. Germany30 has fallen back under 8,000 while RSI has rolled over suggesting its rally may be done for now. 7,890 support has held so far but if it breaks, 7,775 or even 7,525 could be retested. France40 has been knocked back under 3,800 today into its old trading channel, setting up a potential retest of 3,600 key support. Italy40 broke 15,750 and has been testing it as new resistance confirming that its downward channel remains intact with next downside support near 15,600 then 15,380. Spain35 is breaking down. Last week a negative RSI divergence appeared suggesting upward momentum was slowing. Today, index has broken 8,500 and RSI is under 50 signalling a new downswing where 8.260 or 7,890 could be retested. Commodities today Gold is breaking out today, clearing $1,600 while RSI has broken out over 50, both signalling renewed interest and upward momentum. Next key resistance tests appear near $1,625 then $1,655 on trend. Silver is picking up within its $28.25 to $29.50 trading channel. RSI indicates that upward momentum accelerating as its base building process continues. Copper has a major breakdown underway today. It took out $3.50 and $3.45 so far and has held $3.40 with a positive RSI divergence emerging. A retest of the $3.25-$3.30 area can’t be ruled out at this point. US crude has been knocked back a bit but is holding $91.75 shoulder support as a reverse H&S base continues to form. RSI breaking 40 a negative sign though. Next support on a failure near $90.00 and resistance on a bounce near $93.00 then $94.00. UK crude has a key support test underway today. It was unable to remain above $110.00 and is back retesting $108.00. Should that fail, next downside support appears near $106.50 then $105.00 on trend. Gasoline remains in an uptrend but is consolidating today in the $3.00-$3.08 range. Natural Gas is breaking out today through $3.85, burying a H&S top that had been forming. Next resistance on trend appears in the $4.00 to $4.10 area. FX this morning USDCAD held $1.0200 and RSI 50 support for now but remains in a downtrend below $1.0270 with next support on a breakdown near $1.0180 and $1.0100. EURUSD has resumed its downtrend plunging back under $1.3000 and testing $1.2880 before trying to stabilize. GBPUSD has stalled in the $1.5075 to $1.5175 area after an initial bounce.