Friday's late downgrade by Moody's of the UK's triple "A" rating to Aa1, with a stable outlook, while not unexpected, appears to have caught the market slightly wrong footed, and in the process sent the pound to its lowest levels against the US dollar since July 2010.
For some time now the question has always been when and not if the UK was downgraded, but the assumption had been that the agencies would probably wait until after next month's budget, before pulling the trigger. This assumption has proved to be misplaced, and it probably won't be too long before S&P and Fitch follow suit.
The key question now is whether or not the pound will continue to weaken further given that we have already fallen from 1.6300 against the US dollar since the beginning of the year.
The likelihood is that it will, but not because of last week's ratings downgrade but because of last week's change in tone from the Bank of England with respect to its inflation target, the possibility of further QE and the imminent arrival of Mark Carney.
This change in tone, coming as it did at the same time that the US Federal Reserve appears to be expressing doubts about QE's efficacy has had the effect of a double whammy, and is likely to damage sentiment towards a currency that has always been prone to sharp drops.
The likely continuation of weak economic data well into the end of the decade was one of the reasons cited by Moody's for the downgrade, while this week's latest Q4 GDP revision is not expected to offer much comfort remaining at -0.3%. The big concern now is that rising inflation, as a result of the weaker pound, will continue to damage growth prospects in the UK.
Meanwhile in Italy the uncertainty with respect to the end result of the Italian poll doesn't, so far, have had to a significant effect on the euro today. Early indications seem to suggest a low turnout which is a worry as it will raise concerns about democratic legitimacy whoever comes out ahead. The first official exit polls don't come out until 3pm today, giving plenty of time for lots of rumour and conjecture.
The key concern at the forefront of investor thinking is not who will come out ahead, this is expected to be Bersani, in the lower house, but the extent of the protest vote in favour of the Five Star movement of Beppe Grillo, and the resurgence of Silvio Berlusconi and how it may affect the balance of power in the Senate.
Given that Italy has a long history of fractious coalition governments which make it difficult to govern, any other outcome than another coalition seems unlikely, and as such this could well make further progress on reform extremely problematic.
In Japan the yen has plunged further on speculation that a significant policy dove Haruhiko Karudo is set to be announced later this week as the new Bank of Japan governor. He has already gone on record as saying that there is substantial room to ease policy further by the Bank of Japan.
EURUSD - the downside pressure on the single currency for a move towards 1.2900 remains while below the H&S neckline at 1.3320. For now we appear to be finding some support at 1.3150 with larger support around the 100 day MA at 1.3120.
While below 1.3520 and the 200 week MA the bias remains for a move lower and also keeps the bearish weekly candle scenario of two weeks ago alive.
GBPUSD - a failure to consolidate the rebound back above 1.5270 on Friday saw the pound slip back and keeps it on course for a longer term move towards 1.4950, which is the July 2010 low.
Any rebounds need to overcome the resistance now at 1.5270 which had been support for the last 2 years and also the June 2012 lows, with a move above 1.5300 arguing for a larger short squeeze towards 1.5480.
EURGBP - once again retesting trend line resistance from the October 2009 highs at 0.8765/70, a break of which looks set to target a move towards the series of highs in July/August 2011 at 0.8880.
We need to get back below 0.8580 to retarget a move lower towards the lows of last week at 0.8460.
USDJPY - breaking above the 94.00 level brings the US dollar back towards the 2010 highs at 95.00, a break of which has the potential to target a move towards the August 2009 highs at 97.80.
We need a move back below 92.00 to target a move towards the 90.30 level and 29th January lows.