Three month Eurodollar rates ready to plunge, as Federal Reserve gets ready to talk, and Yen is ready to start its upward journey
Kara Zeilig
Jun. 25, 2007

Yen is not a place for the shorts any more. The mortgage defaults and foreclosures in the US economy are creating havoc. Japan does not have that problem. They faced a somewhat similar situation nineteen tears ago. Today, they have emerged champions from the deflation that devastated their economy. What Japan faced twenty years ago, the US now faces the same, however, 100 times worse. Excessive borrowing first creates stagflation. The stagnation grows deeper from Main Street to Wall Street. Eventually it transforms inflation into deflation. The stagnation gets transformed into recession and eventually depression.

The Federal Reserve is in a panic mode. For the first time, they realize that things are going out of their control. All central banks are in trouble.

The Federal Reserve will express its concern. There is no way they will raise rates in the next twelve months. Due to political pressures, they will actually reduce the rates.

Yen is ready for a strong showing between now and end of the year. The Yen trades based on derivatives and swaps have pushed it to its valuation bottom. The Yen can be now the short seller’s death trap. Japan's Finance Minister Koji Omi said it's important that investors realize the risk of one-way bets against the currency. Omi's comments elevated the sense of vigilance against yen carry trades.

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