In a decision that should have come as no surprise to anyone that understands what the role of the courts in a democracy truly is, the German high court upheld the constitutionality of the European Stability Mechanism paving the way for the full Monty of political and financial integration across the Euro-zone. In response the Euro (AMEX:FXE) pushed steadily higher all day breaching $1.29 for the first time in months.
While, ultimately, this is long-term bearish for the value of the Euro it is short to medium-term bullish as money that fled Europe all summer in fear that the politicians and the E.C.B. would not be able to put together a set of moves to keep the currency from flying apart at the seams.
The trade-weighted U.S. Dollar index confirmed it’s break below 80 yesterday as the Japanese Yen (AMEX:FXY) also stayed below support at 81.1, trading between 77.7 and 77.9 for most of Wednesday. As various carry trades unwind the Yen will trade here for the time being as the Euro digests all of this news unless the Federal Reserve announces another formal QE program tomorrow.
My feeling is that QE will not be announced tomorrow, but rather this round has been bought by the Europeans and the Chinese. The next round, however, will be on Bennie and the Boys’ dime. Gold will be under some pressure if that happens, but don’t count on much of a dip as the physical market is extremely tight between central bank buying and the strikes going on in South Africa.
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