Friday 02/12/2011 8PM CET

We think the Dollar will remain firm into next week as we run up to yet another make or break summit in Euro zone. The problem is far from solved in Euro zone and we see it as dead long term. Let's look at the news in Euro zone and also the US employment number today....

We will look at Euro zone and non farm payrolls in a moment 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. A close below 1.020 will see accelerated selling and we think we have seen the end of the rally.

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 and were moving down nicely from this level.

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 now keyed off the 99.00 level for shorts and a close below 98.00 cements the bear trend.

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

Unemployment rate Falls to a 2-1/2 Year Low

Non farm payrolls increased by 120,000 jobs last month and the jobless rate dropped to 8.6 percent, the lowest since March 2009, from 9.0 percent in October. This makes it the biggest monthly decline since January. While part of the fall was due to people leaving the labour force, the household survey, still showed gains in employment.

However limited wage gains are restraining consumers’ appetite to increase spending, which accounts for around 70% of the economy and average hourly earnings fell 0.1 percent to $23.18 from the previous month.

Comment

Better than expected but still a long way to go in terms of seeing sustained growth but at least the US economy seems to be moving forward albiet slowly, while over the Atlantic in Euro zone we have a crisis which is still not solved and threatens the global economy

Euro Zone How Close are We to Seeing an End to the Crisis?

Well saw this quote on Bloomberg today:

“There are also signs Europe’s troubles may be starting to ease. A European proposal to channel central bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($270 billion) to fight the debt crisis, two people familiar with the negotiations said” (Bloomberg)

270 billion, well lets put this in perspective:

Italy has debts of 2 trillion and that's without counting other countries I trouble such as Spain which and the other countries which have already taken money and will need more. One fact to ponder is the IMF is being talked about, when Euro zone has the money to solve the crisis anyway ( if they had a common aim and wanted to) but of course they don't with Germany very reluctant to spend her cash.

So its not a huge amount talked about coming from the IMF and while it could tick the Euro up short term, its obviously does not solve the core problem of how the zone is not tight enough in terms of monetary, fiscal and economic union.

Euro zone is dead in its current form, the sensible thing to do is trim it down in size and put in a common policy and while this is happening, throw the weight of the ECB into the markets to restore confidence. The alternative is – a country going down and a disorderly breakup.

French President Sarkosy said today:

"Let us not hide it, Europe may be swept away by the crisis if it doesn't get a grip, if it doesn't change," Sarkozy said, warning that a collapse of the euro would wipe out people's savings as Frances debt is simply to large.

"We don't have the right to let such a disaster happen."

Well so far he and the rest of Euro zone leaders, have done a good job of letting a small crisis Greece blow up into a major one which threatens defaults of major countries throughout the zone.

Personally, I think Euro leaders, should be ashamed of themselves the way they have handled the crisis. Many countries have over spent and now its all coming home to roost and on the other side, Germany is fuming because, it knows it's likely to end up spending money to save numerous badly run economies and Merkel doesn't want to do – will she turn? We will have to go the brink maybe but she will eventually.

Regardless of how the crisis pans out, interest rates have to fall and years of cost cutting will be needed to get many major economies back on track. Euro zone is already in recession and the Euro should continue to fall, if of course it does survive.

Markets now are awaiting a European Union summit set for Dec. 9 which is supposed to be yet again, the final one to solve the crisis but we have had so many now, I have lost count.

Comment

We remain short from 1.42 and placed our banked profit taken into recent lows back in the market as we came of 1.36 which is key resistance and a break of 1.34 cements the down trend – were looking for the Euro to trade below 1.30 in the next few weeks. We will see some good spikes up as we are oversold but the bearish backdrop, will see the Euro trending lower in the months ahead.

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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