No real surprises here when the Federal Reserve chief says' he will do everything to avoid a recession' or something along those lines. Markets rallied, bonds were sold, USD was sold and risk is on; well tentatively (as far as a relief rally went), in fact rather mildly. The big question can the Federal Reserve print enough money to flow onto the consumer? It didn't work last time it most likely won't work this time. With the Federal Reserve swelling their balance sheet to 2.6 Trillion, I guess you could say those brainiacs will double it; at some-point the Fed will take a hit or a slew of banks will (CMBS are still off retail/commercial balance sheets and we got billion plus losses creeping up - epicenter: Atlanta USA) take a hit. What ever the case with depreciating assets, the Fed can keep printing and the banks can keep absorbing liquidity to cover losses, this can go on forever until the whole system just implodes. In the meantime stock rallies won't be like 2009, instead we will have wide volatility ranges as discussed in Dow and S&P 500 bear signals in a 'graveyard market'. The market will be brutal and unforgiving when liquidity will wash in and out, this will go on maybe for years, please refer to New highs for S/P 500 and Dow Jones 2010?
But I think the markets got ahead of it self, as the Federal Reverse and even the confused 'butnuts' at the Bank of Japan can't do much more; they can keep devaluing their currency's but eventually something will give; in the case of Japan, I personally see China going to war (trade war/protectionism) with Japan. So I don't thin the YEN will weaken, China won't allow it
Congress may pressure the Federal Reserve to not weaken the US Dollar any further on the back of a possible trade war/protectionism with China. As China has attempted to de-pegg the YUAN from the USD (token attempt), rather than artificially be held lower, other wise if the USD is to weakened substantially the Chinese will re-peg their currency and devlue the YUAN. Which will send the US and China into nasty trade war, no problems about that at all. China is paranoid of it's export markets, to have both Japan and the US devalue further is a competitive swipe against that Chinese.
Both the YEN and USD to weaken further most likely will not happen.
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