DY: U.S. Dollar Rebounds as Japanese Yen Onslaught Continues
- Europe Demands More Greek Budget Controls – Bloomberg
- France Joins Spain to Defy Moody’s Downgrade with $18.5 Billion Bond Sales – Bloomberg
- Jobless Claims Drop to near 4-year Low – Reuters
- Spanish GDP Shrank in Fourth Quarter – WSJ
- U.S., Afghans in Taliban Talks – WSJ
European Session Summary
Although higher yielding currencies and risk-correlated assets were mostly lower in the overnight, the real story is what’s going on with the Japanese Yen. Since the Bank of Japan announced it will inject another ¥10 trillion into the markets on Tuesday, the Yen is down over a percent a half against the U.S. Dollar. With the intervention coming ahead of the USDJPY breaking its all-time lows, it is clear that Japanese finance officials are taking a more preemptive stance in devaluing the Yen. This move has paved the way for a sustained rally by the USDJPY over the course of 2012, with my year-end target currently at 90.000.
Elsewhere, the situation in Greece may be getting worse behind the scenes, despite whatever hyper-bullish rhetoric European policy makers continue to spoon feed the markets. As opposed to taking what leaders say at face value, I believe it is more important to take note of the shift in attitude over the past few months. For example, for most of 2011, Euro-zone politicians stated that Greece leaving the Euro-zone was not even a possibility; then in late-October, German Chancellor Angela Merkel and French President Nicolas Sarkozy both acknowledged that it was a possibility for Greece to leave.
Yesterday, Greek President Karolos Papoulias blatantly attacked the Euro-zone core – the group tasked with saving Greece – saying, “Who is Mr Schaeuble to insult Greece? Who are the Dutch? Who are the Finnish?” This infighting is not to be taken lightly; the renationalization of Europe would result in a politically fractured continent and the breakup of the Euro-zone. For those that disagree, the cultural heterogeneity of the region will make it impossible to have sustainable peace over the long-term, and that a unified and peaceful Europe is an outlier in the grand scheme of human history.
