Watching the currency markets right now is an interesting exercise — not a complicated one.  The apocryphal Mrs. Watanabe is pulling her money out of her homeland and depositing it around the world in other currencies and government bonds that promise a far better real yield since her home country has seen fit to reward her loyalty to Japan with a swift kick to her head.  The main recipient of this co-dependent fallout so far has been the Euro.

While things in Europe are anything but fixed, at this point the Euro is going to be bid very highly in order for Mrs. Watanabe to swap out JGB’s for those paragons of stability, Spanish Bonds.  Spanish 7 year bonds, for example, are now trading at yields not seen in more than a year.  Lower borrowing costs for the profligate Spaniards is welcome news for everyone.

She won’t be buying German bunds, either.  The yields are already too low.   Now, while the normal brain-dead mercantilist analysis would state that the Europeans need to respond with cheaper Euros, the truth is that with a global economy showing serious signs of slowing down Brent Crude prices, as priced in Euros, have dropped to  €79.1 per barrel. These are levels not seen in Europe since last summer and if this continues it will ease a lot of pressure on European banks as so much more capital will be available to be put to use cheaply thanks to lower oil prices.

Now, if the ECB could get the gold bulls to return to the pits en masse they would have themselves a trifecta of goodness.