Monday 19/12/2011 8PM GMT 9PM CET

Today we have started the week quietly but we don't see the lull in the market lasting long, as the global economic outlook darkens. Between now and the first week of January most currencies set their high or low for the coming year and this year will be no different..

The Euro is going down a lot further and as we saw at the weekend, the Aussie dollar has huge downside potential and for us, looks set to become one of the best trends on the board in 2012.

The death of North Korean dictator Kim Jong 11 has been cited as increasing safe haven flows to the dollar but we don't see it as any big deal at all and think nothing new will happen in Korea. Investors are more concerned about economics at present and while some brokers are telling us the will have a mild recession we see it being deep and long lasting...before rounding up the news let's take a look at some levels to watch.

Position Summary

In terms of positions we are the same as Friday and levels to watch are the same.

AUD USD: We have been bearish since the pop up to 1080 and we are short and see the 1.000 level as firm resistance in line with the mid Bollinger Band. Only a close above 1.020 would change our bearish stance and we see the Aussie trading all the way down to 80.00 in the New Year.

GBP USD: We have been bearish since the pop up above 1.61 and see resistance at 1.56 and support at 1.54. If we break 1.54, look for a move to test the 1.50 level

CAD USD: We are bearish of the CAD and have been since the pop up to 1.010 and our latest trade is short on the break of 97.00 which is now resistance and in line with the mid Bollinger Band. Break of 96.00, sets up a test of new chart lows.

EUR USD: The Euro has resistance at the 1.32 ( the gap) and also at 1.33, where we took our last short trade. We have been highly bearish of the Euro since it touched 1.42 and see 1.20 or lower. The Euro is very oversold so, we will see good pops up to correct this but longer term, the currency is heavily bearish and looks set for far lower prices.

USD JYP: 77.50 is good support for the dollar and we have bought into this level and want to see a strong break above 78.00 to set up a potential move up to test the spike high. Buy the dips and be patient for the break.

Euro Down Trend Pauses but not for Long – Going to 1.20

“Concerns the euro zone debt crisis will damage global growth pushed the euro back towards 11-month lows on Monday” (Reuters)

I like the quote above saying “concern” about the debt crisis will damage growth – it already has! In fact, if the debt crisis continues it will pose the biggest threat to the global economic order in decades. There is NO solution to the problems in Euro zone – its finished. All we need to worry about is how it will end, with an orderly slim down with countries leaving or a disorderly break up, with a country such as Italy going bust.

I am not saying the Euro zone will end tomorrow but the time clock is ticking to the inevitable end.

The measures put forward to solve the crisis are to little to late and the financial reserves in place via the rescue fund and IMF are simply not enough to cope with the situation and will not inspire confidence in investors.

Rating agency Fitch's on Friday warned it could downgrade France and six other euro zone countries as it believes that the solution put forward at the recent summit was "technically and politically beyond reach". Of course there right and everyone can see it, apart from Euro zone policy makers.

The debts of Italy were a major concern last week as the 10-year bond yield climbed 23 basis points to end the week at 6.59 percent,Italy’s yields rose last month above the 7 percent threshold that led Greece, Ireland and Portugal to take finanical assistance and they could be up there again soon. Let's hope Italy avoids default but even if it does, the outlook for Euro zone is grim long term.

With the zone sliding into recession, interest rates will be slashed and austerity moves by many countries will choke off growth. In our view, there will be serious social unrest in many nations of the zone and we would expect a few to leave of their own free will.

Beware of the Spike Though

The only respite for the Euro will come from the fact that its at a bearish extreme and due a relief rally. According to Commodity Futures Trading Commission data, the amount of traders net short is at an all time high, with the previous all-time high of 113,890 in May 2010, when Greece took a 110 billion-euro ($145 billion) bailout package. Of course there looks no reason for the Euro to rally but when we reach these sort of extremes, we always get one, to hit the speculators on stop.

Comment

The Euro will move lower and probably be at 1.20 early in the New Year. At present were clinging to 1.30 but should go through this level shortly. If we do have a bounce, the current level which will provide resistance is 1.32 ( the gap) and traders could look for shorting opportunities into this level supported by a momentum down turn, with protection behind the 1.33 Level. We remain short the Euro and bearish as we have been and see it going a lot lower. We have made great profits and expect more to come in this great down trend.

China – Everyone Remains Bullish but Hard Landing Coming

I still see a lot of brokers taking up China and how it will have GDP at 9% next year which is rubbish. We see China doing a lot worse than this and will struggle, as export markets shrink and the huge debt accumulated in the boom years, cause serious problems going forward. In fact the move from China of speculative funds has already begun..

Data shows that China recorded a second month of capital outflows in four years in November as a slowing domestic economy, and risk aversion saw money leave the country. The Shanghai stock market has fallen hard and remains close at a 33-month low and looks like it has further to go on the downside.

China has seen huge growth based upon a manipulated currency, cheap labour and strong demand but the demand has now gone and with Euro zone ( its biggest trading partner) in serious trouble and most other markets shrinking. There is no big domestic demand and this is partly due to the fact that China, doesn't really have a consumer middle class – the boom was built on cheap labour and these people have no money to buy consumer goods.

We would expect China to slow up dramatically and this will also mean big falls commodity prices and this will cement the Australian Dollar down trend. China is Australia's biggest trading partner and when China slows up the Aussie Dollar down trend will accelerate.

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