Yesterday the British pound surged on higher than expected inflation numbers.  After being up over 100 pips this morning, the pound was crushed lower on news the Bank of England may cut rates next year as economic growth slows.

GBPUSD 60-min:
 
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Yesterday, when it was reported inflation might be a problem in the UK, and the pound rose sharply, based likely on the background assumption the BOE would have to raise interest rates, did anyone ask either of these questions:

1) Won’t higher rates add to an already vulnerable economy and lead to a major hit to growth?
2) If inflation rises, won’t the real return i.e. nominal minus the “inflation rate”, decline?

I guess they are questions asked and answered this morning.  US equities sinking and European stocks are giving some back as we write.  And $-yen has backed off its high…hmmm…while the Aussie has given back most of its gains.

Could it be yet another swing back to risk aversion?  Are we now in day to day ebb and flow mode?  Not sure, but there is no doubt we have to remain very flexible or trade very sparingly or use a lot less leverage or be lucky or hold onto core risk appetite themes in smaller positions or…well, you get the picture. 

And speaking of pictures—here’s another interesting one this morning showing the key day reversal in GBPJPY.  Will it hold?  Maybe we can answer that one tomorrow. 


GBPJPY Daily:

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We get a peek at US PPI and Retail Sales for October at 8:30 a.m. EST.  Stay tuned and stay flexible.

Jack Crooks
Black Swan Capital