Tomorrow, September 12th may be Armageddon day for the U.S. Dollar (AMEX:UUP) as there are two events that will hit the market in what might be the financial equivalent of 9/11. First the German Supreme Court will rule (most likely in favor of, by the way) of the European Stability Mechanism, declaring it to not be in violation of the German constitution for the most part. I’m sure there will be caveats, exceptions and hand-wringing but in the end the Germans are getting what they’ve always wanted with the Euro, colonization and domination of the European periphery.
While the Euro (AMEX:FXE) moving through $1.285 will grab all of the headlines today it was the Yen (AMEX:FXY) breaking down below 78.12, a level that was defended no less than 12 times since the Euro bottomed at $1.203 on July 23rd that is the move of real significance to the markets in the longer term. This breakdown of the Yen signals that there will be more effective communication that the Fed will unveil a new QE program tomorrow. The actual announcement won’t happen tomorrow, but the language in support of it will be stronger. the move in the Yen is saying quite clearly that QE from the Fed is coming and the BoJ is not playing along by printing along with them, at least at the same rate.
The Japanese are reaching the end of their Keynesian/Mercantilist rope and they admitted as such last week. Now we get to watch as they institute policies in support of that. If they do then the short USDJPY trade will be a good one for the foreseeable future.Previous Post » Corrections at Dow Jones: Kraft Foods, Home Depot and Cisco Systems