Remember our old friend, the Euro-Yen cross from its hey day back prior to the credit crisis of 2008? We used this cross as a gauge of risk sentiment particularly during the massive Yen carry trade of that time frame. The cross came under tremendous pressure when that carry trade was unwound and the investing world was rushing into safe havens and out of speculative positions.
When the Euro was the subject of "the Euro is finished" talk during the height of the European sovereign debt crisis, this cross was hit particularly hard. However, once the ECB got into the act and the Europeans put together their bond buying program, the Euro began a steady recovery against the Yen. Thus far we are not hearing any significant chorus of monetary officials/political leaders out of the Euro Zone making noises about the strength of the Euro. That is why money keeps flowing into the Euro.
I think it is no insignificant matter than the recent rally in the US equity markets which has seen the S&P move to a FIVE YEAR HIGH just so happens to parallel the rise in this cross. That cross has been and still remains one of the more accurate measures of risk sentiment that we have, along with the bond market of course.
Take a look at the recent action of the cross as it confirmed a bottom in November last year and the subsequent action in the S&P 500 which also rallied off a short term swing low that same month. With the exception of the selling pressure in the last few days of 2012 (based no doubt on tax related selling), the two have been moving in lockstep.
Clearly, speculative fever has been revived in regards to stocks based on this cross. The question now becomes, will the commodity sector be next? That is why as long as this cross continues higher, I am going to be very closely watching the price action of the Continuous Commodity Index or CCI. So far that index has not been following the cross higher as it actually went in the OPPOSITE direction of the cross during the month of November. However, it is beginning to show signs of paralleling the cross. If this connection, which was in exact lockstep leading up to the peak in commodities back in 2008 becomes re-established, watch for the precious metals, in particular, silver, to start more of a sustained trend higher. Let's pay close attention to this as well...
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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