British Stagflation

High Prices

High CPI

Currency devaluation

Expansionary Monetary Policy

125 Billion Pound asset purchase

0.50% Bank of England rate

What to watch out for

Increasing wages

Imports

New taxes

Euro, Frank Weakness Ahead

Trading ranges from Friday were tight so I am hoping for some break outs early on Sunday in the east coast. The Euro and Frank Yen pairs are begining the week in a bad position and I am looking for them to follow the path of the dollar from last week.

More Yen Strength to Come

Heading into the Tokyo open the Yen is strong while the Euro and Aussie are notably weak. Currencies were slow tuesday as the equity markets sold off and came dangerously close to signally a bearish downturn. Wednesday in the Currency market may be a repeat of Monday with a big flight to quality. The Yen and US Dollar will be strong.

Potential Trouble in US Equities

The the GBPJPY is 95% correlated with the S&P 500 over the last five years, and the currency pair just tanked after completing the same head and shoulders pattern that the US stock market is setting up for. S&P 500 futures have been bad since the market opened this week and will likely be bad all day today, Monday.

The USD/JPY used to be highly correlated to the US stock market as borrowers would borrow money to buy US stocks, or deleverage and sell US stocks. That correlation broke down when the US Fed dropped it's interest rate to 0-0.25%. There was no reason to to buy the USD/JPY when the GBP/JPY still returned a healthy margin. The GBP/JPY correlation should hold as long as the Bank of England doesn't interfere. They do have rate decisions and a lot of economic data coming out, so the GBP/SPY correlation should be monitored closely

Faster Than Bloomberg

I've been buying Yen all throughout the Asian session. I covered my Sterling bet and got short the dollar as the Western European markets are about to open. They are all waking up to a lovely piece titled "Yen Advances Verses Euro on Concern Credit Losses Increasing" (Bloomberg)

GBP/JPY Breaks Down

The Japanese sold the pound aggressively at the open in Tokyo. The Pound was driven below it's seven day low against the yen. I put this sell on a couple of hours ago. The play is similar to the Kiwi short that I posted a short while ago. While the kiwi drifted back up to the 20 EMA and I covered, the GBP continues to be weak. The ICH on the 30 minute chart is also providing some downward pressure on the GBP/JPY and that may be helping my new position.

In equity news, the S&P 500 futures are pointing to a lower open. The futures are trading 90 points above the 880 level that would confirm a head and shoulders topping pattern.

Economic Events

Tuesday
AUD Interest rate decision @ 4:30 - Predicted to remain at 3.00%
GBP June GDP estimate @ 23:00 - Previously -0.9%

Wednesday
EUR Q1 GDP estimate @ 9:00 - Previously -2.5%

Thursday
AUD Employment @ 1:30 - Previously -1.7K
GBP BoE rate decision @ 11:00 - Expected to remain at 0.5%
CAD Housing starts @ 12:30

Friday
CAD Employment @ 11:00 - Previously -41.8K

Times are GMT. (DailyFX)

Sell Kiwi on the Open

The NZD/USD opened weak in Sydney. The price is trading between the second and first bollinger band and below the previous days low. I'm putting on a short with a stop at the 20 period EMA.

Developments

As a weak stock market could be a cue to buy dollars, a strong stock market can be a dollar killer. My USD/CAD and USD/EUR positions pulled back as the S&P moved higher. The USD/CAD was due for a move dow; I was expecting it and I had tighted my stops just last night. The AUD/USD is showing some relative weakness, however, even though their retail sales were better than expected. More investigation is required about the Aussie.

Apparently the Euro is correlated to higher makrets; I'll have to look at this. (Bloomberg)