All of that makes it hard to project how long the tide will flow in the current direction. I'd say at least until the U.S. stumbles its way to some kind of deal on the fiscal cliff and the debt ceiling. And until the Bank of Japan and the new Japanese government reach some kind of accommodation. And until the February elections in Italy prove really dysfunctional.

The flows could continue in the euro's direction for longer than that if U.S. negotiations break down long enough to lead to a downgrade of the U.S. credit rating. Or if the Bank of Japan caves in to the new government and starts to stimulate at the high level needed to get inflation to 2%. Or if Berlusconi throws his support back to Prime Minister Mario Monti and his technocrats, and the February elections in Italy restore the status quo.

The biggest impact

I've mentioned the effect of a strong euro/weak yen-dollar tide on improving sales for weak-currency exporters and improving quarterly earnings for Japanese and U.S. companies that will translate stronger sales in stronger euros back into weaker yen and dollars. And I've mentioned that a weaker dollar would push up the prices of commodities such as oil, copper and gold.

But the biggest effect would be on global cash flows into commodity-based economies and emerging markets. Low interest rates in the United States and Japan and a reasonably reliable expectation that the yen and the dollar will continue to slide (even if only slightly) will power a carry trade that will send hot money into financial assets in countries such as China, Brazil and Australia. Look at the interest rate differentials: The benchmark short-term interest rate is at 0% to 0.25% in the United States and Japan -- and at 3% in Australia, 7.25% in Brazil and 6% in China. If you can borrow at low rates in the United States and Japan, and then invest at high rates in Australia, Brazil or China, who wouldn't? Especially if the currency trend is flowing against the yen and the dollar, so that you're likely to have to pay your loans back tomorrow in yen and dollars that are worth less than they are today.

There's some evidence that we're already seeing fast money flows into Hong Kong. Hong Kong's Hang Seng Index is up 17.7% since the Sept. 5 low and 6.8% from last month's low on Nov. 15. And it looks as if China's government is interested in capturing more of that overseas hot money for its Hong Kong and Shanghai markets. On Dec. 13, the head of the Hong Kong Monetary Authority said that China may relax or abolish rules that require the biggest of overseas investors to keep most of their money in bonds. On Dec. 14, China did abolish the current $1 billion ceiling for investments from sovereign wealth funds and overseas central banks.

How long countries such as China and Brazil will welcome these hot money flows is an open question. These cash flows push up the price of local currencies -- albeit very gradually in China -- which takes a competitive bite out of local exports. At some point, that damage to local business can produce interventions in the currency markets. We might see countries selling reserves of their own currencies in the markets in an effort to drive down their currency's price.

For example, Brazil has already warned the United States that the Fed's new round of quantitative easing risks a renewal of global currency wars. Since 2010, Brazil has used measures to control the appreciation of the real whenever its strength sufficiently threatened Brazilian exports. The real ended last week at 2.086 to the dollar. That's roughly a third below the currency's July 2011 peak of 1.52 to the dollar.

This is why the question of how long and strong the tide will run in the euro's favor is critical to determining the effect of a stronger euro and weaker yen/dollar. If the move looks temporary and unlikely to run much further, I think countries like Brazil and China will take only minimal steps to protect their exports. Without those steps, the strong euro is a tide that is likely to lift the prices of financial assets in those markets -- and in commodity economies such as Australia and Canada.

But if the tide shows no signs of moderation by, say, February, then I think we could see moves by developing economies that would aim to weaken their own currencies to keep up with a falling yen/dollar.

That would add significant crosscurrents to global cash flows and make it much harder for investors to figure out exactly how the currency tides toward the euro, and away from the yen/dollar, will play out in the prices of global stocks and bonds.

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At the time of publication, Jim Jubak did not own or control shares of any company mentioned in this column in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any company mentioned in this column. The fund did not own shares of any company mentioned in the column as of the end of September. Find a full list of the stocks in the fund as of the end of September here.

Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.

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