Tuesday 10/01/2012 8.00PM GMT 9.00PM CET

Today we saw US stocks hit 5 month highs but this really is a fantastic sell opportunity and in the months ahead, we are going to see stocks crashing and the dollar continuing its trend higher.

For now the Dollar has eased slightly but it wont be for long the big picture is one of slowing growth and a fiscal crisis in euro zone which still has the potential to cause the biggest economic turn down since the thirties. Before we look at the news, lets check out important levels of support and resistance and round up our trades.

Trade Summary

Last week we reduced Euro, Canadian and Aussie Dollar positions by 50% banking out near the lows. We also flattened our short Pound into 1.54 for a profit, and taken all our profit from the swing trade we did long dollar yen. Were much the same as yesterday but the Aussie is close to us loading up as we come into 1.040 and the Canadian Dollar as we approach 99.00

AUD: We are short into 1.040 and have a good profit and will look to put our banked profit back in on any rally or break of 1.010 support which is in line with the mid Bollinger Band.

GBP: We banked out into 1.54 and were now going to re sell back on any fall in momentum and see the 1.56 level ( where our last short trade was taken) as a good level to sell into. We are seeing a rally and now were on alert to sell it for a move back down to and through 1.54.

CAD: 99.00 key resistance on the upside. We remain short from 99.00 and looking to put our banked profit back in the market.

EUR: We have banked 50% of our Euro short trade and see a rally back to 1.28 – 1.29 as a good selling opportunity on falling momentum with stops behind 1.30. We have been selling the Euro since the move up to 1.42, made a lot of profit and expect more to come.

JYP: We took the bounce up in the dollar due to it being oversold and as we stalled we banked our profit and were now flat. We will look to go long again on a move to oversold or break to the upside from the channel at 78.00.

Euro Zone – Fiscal Crisis Rumbles on Euro Going South in a Choppy Trade

Nothing new in euro zone a lot of talk of a long term solution ( which no one really is interested) there interested in debt levels now.

In addition to debt we have economic activity slowing with only Germany bucking the down trend but Germany is not the problem its other nations and while Italy has been in the spotlight recently France is today and it's the second biggest economy in the zone.

In France the central bank said growth had stalled in the fourth quarter of 2011 in the zone's second-biggest economy. French industrial production however rose 1.1 percent in November on a call for zero growth but numbers recently have been generally poor and the country is slowing up.

Euro zone banks were also highlighted by another record high in overnight deposits held at the European Central Bank by commercial lenders which is most of the money grated to them by the ECB in cheap loans from 489 billion Euro's in the ECB's quantitative easing ( although the ECB don't call it this) liquidity operation late last month.

Debts are huge for many countries, borrowing costs are to high and even worse when austerity measures have to kick in, economic growth is contracting. This will make it impossible for many countries to trim their deficits and fuel public anger even further. We have money being printed to solve the problem ( which it won't ) interest rates on the way down and in our view its only a matter of time before Euro zone sees a country go bust or countries start to leave of there own free will.

The zone is a mess with no clear policies to inspire confidence. The best we can hope for is an orderly break up rather than a major nation go down. Whatever happens, euro zone faces a its biggest recession in the post war era – sell the Euro on rallies and look for it to move to 1.20 or lower.

China Going Down and Taking the Aussie Dollar With it

China's exports and imports grew at their slowest pace in over two years to December 2011 which we think is confirming, the slow up is under way with other indicators and that China could be heading for a hard landing but the news wires are bearish – there bulls and here are two comments which amused me.

“U.S. stocks rose, sending the Standard & Poor’s 500 Index toward its highest level since July, on bets that China may act to spur economic growth” (Bloomberg)

“The figures fuelled expectations of more policy action from Beijing to support the world's second biggest economy, and most Asian markets gained on Tuesday” (Reuters)

So how are they going to do this? There export markets are contracting and there is no domestic demand to pick up the slack. We have huge Government and private debt and inflation is present at reasonable levels – will slashing interest rates help? No its an export led economy, its now going to suffer as the global economy contracts.

Chinese growth is built on a manipulated currency and cheap labour and its never bothered to try and foster a big middle class and the fact is most Chinese are worried about how to make ends meet and not thinking of buying consumer goods. China is going down and economic growth will contract dramatically in the months ahead and this will drag the Australian Dollar down with it.

Risk Assets – Huge Falls are Coming Safe Haven Currencies Going Up

Risk assets are holding up well so far in 2012 but it won't last and we expect to see big falls in global equity markets this year and this will fuel safe haven currencies such as the Dollar and keep its up trend intact.

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