9 January 2014 EX Blueprint Thin end of the wedge over view Sticking to regime change; dollar uptrend 2013 marked a fundamental regime change from the crisis-prone 2008-2012 period. The dollar's correlation to equities flipped, the euro-area avoided a crisis and the Fed announced a rolling back, rather than an expansion, of QE. If there was a locus of crisis it was in emerging markets, which felt the shock of Fed taper. This could hint that the 1990s dynamic of first half dollar weakness and developed market crises and second half dollar strength and emerging market crises could be repeating itself. We therefore remain committed dollar bulls. If last year was all about the US long-end being re-priced on taper, 2014 will mark the re-pricing of the US short-end. December's Fed decision therefore represents only the thin end of the wedge for US interest rate normalization and its effect on markets. This should allow the USD to strengthen against the core European hold-outs to dollar strength, the euro, Swiss franc and pound. The equity flow picture should finally move in favour of the US as slow-moving capital adjusts to the new DM regime. Our favourite expression of dollar strength would be to buy it against the three most over-valued currencies in the world, the New Zealand Dollar, Swiss franc and Singaporean dollar. Yen trend still down While we are looking for a reversal in core European currency trends, on the yen we remain firmly in the bearish camp and look for a trend extension from last year. What adds to our confidence is that major yen turns tend to see the yen move by 43% on average,and we're nowhere near such a move yet. On fundamentals, the BoJ is also conspicuous amongst the major central banks in ramping up QE, the basic balance of payments is heavily negative and foreigners have yet to unwind their safe-haven inflows to Japan that were accumulated in the crisis years. hest ct GIO We underestimated UK growth in 2