Over the past few days foreign currency markets have been probing higher and overnight increased their upward pressure enough for the US Dollar Index to once again break below the psychological important number of 85. This kind of action, especially ahead of an upcoming US holiday, could be a harbinger of sustained divergent moves in these currencies that could potentially, stretch all the way into year''s end and early 2007 and could be the beginning of an accelerating 5% plus decline in the US Unit that could put new multi-year lows and a target range of 75 ~ 80 within its sights in the foreseeable future. That could in of itself, be the catalyst that ignites the next major upmove in precious metals. Longer term readers may recall that on a number of occasions this year we alluded to the first half of the year as being Dollar strong with the second half potentially being Dollar weak, in much the same way as occurred in 2004, which incidentally was also an election year, wherein US Equity markets had a very strong finish, along with Precious Metals in general against a weak US Dollar.

Renaissance of Japan

The one currency that has been odd man out for most of the year, has been the Japanese Yen, which has been making lower lows, except that for the first time in quite a while it is showing some signs of re-alignment with the Eurocurrencies and this could be pivotally important: Because, should the Yen turn up from this current low end range, not only would it take many Japanese Yen bears by surprise, but it would actually contribute to the US Dollar''s if forthcoming, potentially accelerating decline. And, one should not forget that the Japanese Yen has a propensity to rally furiously out of previous abysses that quite dramatically marked the lowpoints for the past two decades and caught out a number of major traders who were positioned on the wrong side of those moves, allegedly even including great Supertrader George Soros.

Japan''s Nikkei - New all time highs are coming

Since Japan has been in a powerful recovery mode over the past few years, coming off a 13 year bear market and steep correction form its all time highs of near 40,000 on the Nikkei: At the culmination of perhaps one of the greatest bull runs ever from 40 to 40,000 in 40 years, it would be foolhardy to underestimate the potential upside that markets hold for Japan in the coming decades. As long term readers already know, we are perhaps among the very first in the World to call for new all-time record highs in Japan by 2020, but recently upgraded our forecast for new all time highs by as early as 2010 with the very real possibility of the Japanese Nikkei reaching 100,000 by 2020 or for sure by 2030 and since we have the unique distinction of having predicted 1,000 percent gains for the Mexican market 11 years ago and seeing this forecast exceeded by a significant degree and also calling the lows in Russia in November ''98 with such compulsion we recommended placing 10% of one''s assets in Russia, which by some measures has since soared almost 100 fold, we are very confident of our new vision and predictions regarding Japan: In particular, because, in spite of the fact that Japan went through a series of contractions over the decade past, it really managed to weather the storm rather admirably and has re-emerged as a formidable competitor, especially in the automobile sector and what now makes us so mega-bullish on Japan, is the realization that Japan is in the emerging stages of another super-wave of similar proportions to the one that powered it from 40 to 40,000 in the aftermath of WWII. That kind of market power when it is re-ignited will almost know no bounds and to emphasize this point, most money managers today, would acknowledge that Japan is undisputedly one of the most undervalued markets on earth and sitting at the edge of a 3 Billion strong burgeoning consumer market right on its doorstep and with 3 Billion otherside Global consumer''s insatiable desire for Japanese products, its economic engine is only just warming up and likely deliver a breathtaking performance in the years and decades ahead, as it regains its traction and delivers ever greater profits for the empire.

And those mega-profits and the Global tsunami of investment funds that are likely to find their way into Japan''s equity markets, are likely to drive the Japanese Yen itself to new all time record highs before too long, in the kind of stunning upmove from the mid 80''s to the mid 90''s.

Yesterday our expectations for the S&P to overcome the 1,300 level which we suggested might occur and this week were fulfilled with some vigor although markets struggled some late in the day. The resolution of the next directional move from here could be profound, but as we brought to light last week, the S&P 100 almost reached post 9/11 new all time highs yesterday and the Dow itself is close to record.