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With the USD as the bookie's second favorite, behind Zimbabwe, in the Great Currency Devaluation Race and the euro as the 1000/1 three-legged outsider, the world has gone into pre-QE DGDF overdrive. But the dirty tricks games of double bluff are alive and well.

China have just thrown in one of their "China C.Bank Says Will Increase Yuan's Flexibility" headlines which, to be honest, are as worthless as "the cheque's in the post " statements. But it's pretty symptomatic of the phoney war we are seeing appear all over the place, where stated policy is so obviously at odds with self-interest.

In Europe, austerity packages are launched and lorded for the benefit of the shareholders, the creditors, bond holders and the ratings agencies with the country involved never really wanting to enforce them.

The UK is the same with cuts of 25% in public spending stated which, if ever delivered in one hit, would kill growth if there is no growth elsewhere to compensate.

It’s a matter of hoping the cavalry arrive before implementation has to occur. Zapatero has even gone to the extreme of shouting at the enemy that the cavalry HAS arrived (funding crisis is over) in a hope to scare them off and he seriously jumped the gun in August suggesting reinstating infrastructure spends.

Today sees Spain's general strike kick off and we have had the normal stream of negative Irish newsflow with Anglo Irish, but the market is still in denial of anything EUR/USD negative, with that US QE argument driving everything, which goes: US print money, USD goes down (EUR/USD up), the rest of the world buy USD versus their own currencies and then rebalance those USDs into euros, so there is more EUR/USD uptrend.

And of course Gold. We all know that’s been the mechanism for China, but with so many others now joining the fray it's making us reconsider our "euro woes means euro blows" policy and perhaps we could see the first example of a currency ending in a supernova.

Normally, when somewhere starts to die its value gets sold off and it dies in a whimper, the brown dwarf outcome. But the Supernova outcome would involve this process of the euro being the final resting place for everyone else's QE going critical, which leads to Europe blowing apart through an explosion of currency strength despite some blindingly obvious internal problems.

Ireland, for example, currently have the double whammy of seeing their cost of borrowing soar and their currency soar. If the euro really takes off, instead of the argument being over how long Germany will tolerate the Periphery being part of the same group, you would see the Periphery clamoring to get out of their own accord. "You want to leave? Well, if you insist..."

But elsewhere there is a spark of good news re a unified Europe - Germany's involvement in the First World War officially ends this Sunday.

Disclosure: No positions

Source: Report From Europe: Update on the Great Currency Devaluation Race