Why the EUR/USD may run off the rails...Next stop $1.20

Over the past few years we have watched the dragon emperor at the ECB parade around in the finest linens and silks known the world over...or so we've been told. The emperor will do whatever it takes for us to believe that he is not, in fact, nude. We have believed him, thus far, that whatever the measures may be - will be enough. The emperor has taken a great risk this past week by doing something other than talk - lowering a certain rate into negative territory. He has had so much success talking up his invisible wardrobe that he may now believe the legend himself. It is not a stretch of the imagination to understand if his entire court is also sporting the finest invisible linens and silks.

"It is difficult to get a man to understand something, when his salary depends on his not understanding it."
                                                           -Upton Sinclair

Unfortunately, for Europe's sovereigns (mostly periphery) and financial institutions - liquidity does not equate to solvency. I doubt that Europe's bankers remember how to generate and digest alpha that is not first blended and spoon fed. When this new development ends badly...and it will. Europe's banks will likely be forced to unwind their geared up and wretched balance sheets. This is when the dragon emperor will don one of his finest invisible silks and reach into his bag of tricks and realize that whatever bazooka he pulls out - all the crowd seems to notice - his junk....bonds.

Disclosure - I have an open position in this issue.