European markets look set to open sharply lower today after weekend events in Cyprus start to get absorbed by investors and traders at the start of what could well be a turbulent week for markets with the UK also set to be in focus with important inflation and unemployment data, not to mention the Bank of England minutes and UK budget measures. If European policymakers were looking for a way to undermine the public trust that underpins the foundation of any banking system they could not have done a better job in announcing this weekend that they intended to mount a 6.75% tax grab on all Cyprus banks deposit holders, be they rich or poor with savings of less than €100k over the weekend as part of a bailout package agreed with the IMF, ECB and EU. Depositors with over €100k are set to be hit with a levy of 9.9%. Not only is it in complete contravention of the deposit insurance rules agreed by all EU countries in October 2008, and an absolute PR disaster, but it opens up a Pandora’s box of all possibilities with respect to precedent and future measures in other EU countries that find themselves having to ask for help in the future. The decision to give depositors shares to the value of their holdings in the bailed out banks is likely to be small comfort given that these banks shares are likely to drop sharply in value. EU leaders have at various stages of the current crisis promised that certain actions were unique only for them to turn out to be just the beginning of a long chain of one-offs. One only has to look at the 1st Greek bailout and the promise of no haircuts in May 2010 to see the direction of travel and the worth attached to EU leaders so called promises. Comments from a Cyprus official, quoted by the FT, who is involved in the weekend talks, highlight the risks. “If this is successful then it will be used in the future”, predicting Spanish and Italian banks could face similar levies. The weekend actions do beg the wider question why EU leaders would embark on actions that could have the potential to start bank runs across Europe, especially when Eurogroup leader Dijsselbloem refuses to rule out the possibility of it happening again. At best the actions could be described as misguided, at worst as completely moronic. In any case given the storm of protest across both social and ordinary media at the weekend created by EU policymaker’s intentions, there is a chance that the percentages may get changed as Cypriot politicians try to get the measures passed in the next day or so before the banks reopen after the bank holiday. While this may soften the blow the danger is that EU leaders have crossed a Rubicon here with potentially dangerous consequences for other EU nations. There is also a wider worry in the context of the events of this weekend. Throughout the entire debt crisis support for the single currency amongst ordinary voters in Europe has remained surprisingly high, despite the austerity and the high levels of unemployment, largely as a result of the fact that voters have placed the blame for the crisis squarely at the feet of their local politicians. If European policymakers adopt and force through this package of measures, irrespective of the percentages levied on the savings of ordinary people, we could well start to see that public support begin to ebb away, with potentially serious consequences for the future of the euro and the EU in a number of countries in the euro area. EURUSD – Friday’s pullback from the 1.2910 lows last week saw a retest of 1.3100, however weekend events saw the euro open much lower in Asia. The key resistance remains at the 100 day MA at 1.3130, while behind that we have resistance at 1.3170. The key support lies just below that at 1.2870 50% retracement of the 1.2045/1.3710 up move and the 200 day MA. GBPUSD – as suspected cable continues to squeeze higher and the next resistance remains towards the highs this month between 1.5200 and 1.5220. A bullish engulfing week suggests the potential for further gains towards 1.5400 on a break of 1.5220. If we drop back below the 1.5000 level then we could fall back towards 1.4920. EURGBP – the euro plunged in Asia trading breaking below the 0.8570/80 lows we saw at the end of February, which is likely to see a test of the 200 week MA at 0.8520 as well as the February lows at the 0.8420 level. The euro now needs to retake the 0.8580 area to retarget the 0.8680 level. USDJPY – selling in the EURJPY cross has seen the US dollar drop sharply after last week’s failure to get through the 96.70 level. An s long as we stay above the 94.00 level then we should get a move towards the 99.80 level which is 50% retracement of the 124.15/75.30 down move. A break below 94.00 opens up a move towards the 92.80.