The Cable is reversing from our 2nd tier downtrend line and it appears the currency pair could have more immediate-term losses in store. If August 3rd lows don’t hold we could witness a decline towards 1.66 and our 1st tier uptrend line. Looking across the board, we see huge gains in the USD/JPY and large losses in the EUR/USD while gold heads south. Additionally, the S&P futures are looking to break free of their highly psychological 1000 mark. All of these movements indicate a broad based appreciation WITH key upward movements in U. S. equities.

America released better than expected employment data today and investors are taking notice. Rising unemployment has been the sore thumb in America’s economic recovery, so a big improvement in the non-farm employment change is very encouraging for U. S. equities. However, the most notable development today is the reversal in correlation between the S&P and the Dollar.

The Dollar’s rapid appreciation across the board in light of today’s economic data gives us reason to speculate that the positive correlation between the GBP/USD and U. S. equities could be shifting. Investors are putting a lot of faith in the U. S. economy today by betting on both U. S. equities and the Greenback. We also notice a spike in volume to the sell-side in both the Cable and the EUR/USD, indicating investors are putting their weight behind today’s FX movement. However, it would be unwise to make a conclusion based on one day of activity. On the other hand, the clear reversal in today’s correlation should ignite a great debate.

Britain released data of its own today. Britain’s PPI Input number came in much lower than expected, showing the UK is still experiencing deflationary pressures due to the decline in consumption. Today’s PPI data tells us why the BOE added $84 billion to its QE package yesterday. Inflation obviously isn’t a worry at the moment, and the BOE feels it’s suitable to inject more liquidity to keep credit flowing. Meanwhile, investors should keep a close eye on the correlation between the GBP/USD and U. S. equities. We are monitoring the reversal in correlation carefully, and will provide further observation-oriented analysis on Monday.

Present Price: 1.6712

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