July 6th 2016: Carney Triggers Carnage

• This morning, the pound remains low after hitting a 31-day low against the US dollar yesterday. The main catalyst was a speech by Mark Carney who warned that the risks of Brexit were beginning to crystallise. He pointed to adjustments in commercial real estate as investors take fright and rush to pull funds out of illiquid property funds. Perhaps the great catalyst was the prospect of further monetary easing and imminent rate cuts.

• The risk-off sentiment has spread across world markets, with the US dollar pushing higher and yen pairs slumping lower.

• The Australian dollar shared the risk-off pressure, not helped by the ongoing political uncertainty.

• Coming up today we have ECB president Draghi speaking at 09.00.
• This is followed by Canadian and US trade balance.
• Then we get ISM non-manufacturing PMI at 15.00.
• The main highlight is the release of FOMC meeting minutes at 19.00.

Trade Idea: 

• The GBP/JPY has been selling off heavily, but with contagion spreading, now is not the time to be looking for bargains – keep selling.

• A good way to play this is a LOWER trade predicting that the GBP/JPY will close below 129 in 30 days for a potential return of 147%.

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