Monday 01/12/2011 9PM CET

U.S. stocks fell, after the biggest three-day rally in the Standard & Poor’s 500 Index since 2009 and we expect to see them fall further. This was no more than a bear market bounce and the global economy is slowing and we still of course have the Euro fiscal crisis which is not going to have a happy ending.

Britain's banks should build up their capital reserves, as insurance against an - "exceptionally threatening" environment the Bank of England said today. "It is sensible to raise the capital buffer further in order to improve resilience in light of the continuing threat to UK financial stability," the committee's chairman BoE Governor Mervyn King concluded and of course the threat is Euro zone.

We will look at Euro zone in a moment and the outlook for non farm payrolls tomorrow but first, lets take a look at our positions.

Summary

AUD/USD: Were short AUD from 10800 and had been swing trading on the way down but our stop was hit on the break above 1.010 and we sold on the move above 1.030 and failure to move through to 1.040. Were quiet early with this trade and a close below 1.000 is needed to cement the down trend again.

We see the 80.00 level being tested in the next few months and see this as one of the best trends on the board.

GBP/USD: We have been trading the short side of the Pound since 1.61 and its sold off hard and last week we took 50% of our profit into chart lows and been waiting to put it back in and the rally to 1.58 has given us the opportunity we see this as a good level to key off for shorts.

CAD/USD: We have been trading the CAD short since 1.010 but we banked our profit out yesterday as our stop was hit and we have no keyed off the 99.00 level for shrts.

EUR/USD:We were short from the pop up to 1.42 and we have been swing trading all the way down and took some profit last week into the lows expecting a rally and we have got one which has run up to test 1.36 and failed to break through and is now come off and a break below 1.34 will cement the down trend back in favour of the bears.

USD/JYP: We bought the dollar on the break of 77.50 and sold it after it failed to follow through 78.50, its a small profit and we moved to the sidelines and were waiting to buy a dip

 Euro – Merkel Sound Idea but it Won't Solve the Crisis

German Chancellor Angela Merkel is set to turn down the idea of a bigger European Central Bank role in curing the fiscal crisis and will make clear, that she wants tighter economic ties in Europe which will include:

A rework of European Union rules to lock in budget monitoring and enforcement and stop the ECB coming under political pressure.

Well in many ways that makes sense as many European countries have simply let debt get out of control through bad management and also the fact they all suffer the same interest rates but how will this stop what could be disaster for countries like Italy and Spain?

It doesn't – the immediate problem is to restore confidence and the only way is to let the ECB have a bigger role.

The ECB is independent and must choose its own ways of dealing with fiscal policy:

“without being praised or criticized” and states must protect that independence by improving their finances, the Westdeutsche Zeitung quoted Merkel as saying today.

I must admit I am quiet bored about writing about this crisis, as it makes me quiet angry that people in responsible positions seem to just get it wrong so often and can't agree on policy, even when we face a global crisis which could plunge the world into recession.

Merkel, doesn't want the ECB involved which is an obvious short term solution while other EU minsters tell us, their going to ramp up the rescue fund but we still don't know by how much and its to small anyway - so what are they doing?

They want help from the IMF to bail them out when Euro zone can really do it themselves, if they wanted to. Euro zone policy making is a joke and has been for months and who will suffer – the ordinary hard working people as per usual, will suffer from this leadership incompetence for years to come – alas there looks to be no happy ending to the crisis.

Comment

Were sticking with the view we had several months ago that Euro zone is dead in its current form and the only thing to ponder is will there be a re structure of the zone ( the best option) or a disorderly break up ( worst option) either way, Euro zone is in recession, interest rates will fall and the debts, will take years to sort out. In our trading were short the Euro from 1.42 and have been swing trading all the way down and took profit last week into the lows.

We have key resistance 1.36 which is the mid Bollinger Band and we failed to get through it yesterday and have failed again today. We do have a lot of speculative shorts and expected them to trigger a good short covering rally and its occurred but longer term the trend is down and we expect to trade below 1.30 shortly, look to key off the 1.36 level for shorts.

US Job Creation Still a Problem

Over in the US Americans than forecast filed applications for Unemployment during the holiday- shortened week,. Jobless claims climbed by 6,000 to 402,000 in the week ended Nov. 26 that included the Thanksgiving holiday.

Payrolls may have added by 125,000 workers for November, after being up 80,000 in the previous month, economists surveyed by Bloomberg projected ahead of a Labor Department report which is due out tomorrow. “Hiring was generally subdued,” the central bank said in its Beige Book survey which came out yesterday. “Overall economic activity increased at a slow to moderate pace” in most of its 12 districts”

Comment

The payroll number expected is quiet optimistic and we see the potential for a bearish surprise to add to the general doom and gloom were seeing at present in financial markets and see unemployment at above 9% which is far to high, it's been at this level for months and we don't expect it to change this month.

Final Words

  With the bearish backdrop to the global economy, we see the dollar as a buy on dips. This policy has served us well for months, made us great profits and we expect more to come.

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