EURUSD Weekly Outlook: Likely Direction, Must-Watch Drivers, Price Points

UPDATE: good post on Ft.com on new EU bank regulator: Eurozone’s new super-regulator prepares to be unpopular
[ http://www.ft.com/intl/cms/s/0/c2f9114e-9023-11e3-a776-00144feab7de.html#axzz2su41ANVn ]

hope to include bit on that in coming post today as update to brewing EU banking mess

EURUSD will lose a lot more if EM’s continue to dive

Eventually Germans either allow cheap EUR with inflation risk or leave – so far they consistently opt for the first option.

JPY might first to sell off hard – 200%+ debt/gdp and now doesn’t even have the trade surplus

Suspect EUR will go first - Japan has free use of printing press without interference from Germany, and just one group with common interests, language culture, EU still moves slowly due to its 'run by committee' like fragmented decision making process.

Japan has a functioning currency union per basic criteria of per Robert Mundell (one of seminal thinkers on EU) see: http://en.wikipedia.org/wiki/Optimum_currency_area, EU is far from it and not making much progress towards getting there

German Courts have never done anything they think might destabilize EU, they look at realpolitik before they consider the law – which is usually written vaguely

what will be the thing that kills EU - banking crisis, sovereign default and contagion, funding nations refusing to pay in more for bailouts or loans that it knows won't be repaid, or debtor nations exiting?

CORRECTION; Upon further review, the sources on which I relied for the ruling of the German constitutional court - Reuters here: http://uk.reuters.com/article/2014/02/07/uk-germany-court-ecb-idUKBREA160CU20140207

were incorrect.
The German court did not simply say the ruling was out of its jurisdiction and wash its hands of it. In fact it simply referred the case back to the ECJ for "clarifications" about certain points that maybe, if very restictively interpreted by the ECJ (unlikely given the ECJ's record of supporting any and all EU federation) might allow the OMT to not violate German law.

However in essence the court said the OMT appears to be in direct conflict with German law by possibly allowing the EU to bypass the German Parliament and require Germany to pony up funds for bailouts (the very short version). The court had other objections.

Bottom line, the German court is likely to be in direct conflict with the ECJ, and any German funding of OMT at this point is in doubt. Hope to have more on this in coming posts

oh, for details see Ft.com: http://www.ft.com/intl/cms/s/0/8a64e3ac-8f25-11e3-be85-00144feab7de.html?siteedition=intl#axzz2su41ANVn
and related articles referenced there

in short German court said we want clarification and probably German law will prohibit German participation in OMT funding

so, the big sovereign bond backstop is not only untried, it may well prove unfunded -- unless, as I discussed in detail here:http://www.fxempire.com/news/special-feature/coming-2014-explosion-eu-money-supply-or-eu-itself/ the EU just accepts some kind of outright sovereign debt monetization and prints Euros