Monday 09/01/2012 8.00PM GMT 9.00PM CET

The Euro is trying to rally and could run stops up to 1.30 but that will be as good as it gets. We will have a good rally and when it fades the Euro will sell off aggressively again. Overall we remain dollar bullish and expect far higher prices in the weeks ahead.

We will look at Euro zone in a moment but first, lets look at some support and resistance in the major currency pairs.

Trade Summary

We have reduced our Euro, Canadian and Aussie Dollar positions by 50% banking out near the lows last week and we have flattened our short Pound into 1.54 for a profit, and taken all our profit from the swing trade we did long dollar yen but we will be looking to leverage back up in the coming days.

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. This trend is the best on the board,in our view in terms of potential and we see it going down to 80.00 in the next few months

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 today and now were on alert to sell it for a move back to and through 1.54.

CAD: 99.00 key resistance on the upside and before that we have 98.00 and the mid Bollinger Band. 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 - 129 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 tod we banked our profit and were now flat and will look to go long again on a move to oversold or break to the upside from the channel at 78.00.

Euro Going Down to 1.20 but There Will be a Big Spike Up

Europe is “slowly but surely” mastering the debt crisis, even if a solution has taken longer than hoped, EU President Herman Van Rompuy said today but we see no solution and see the eventual collapse of the zone. Were due a short term rally but long term, the euro zone in its current form is dead.

I saw this quote on a news wire this morning...

“Until recently, the euro tended to rise on strong U.S. data as signals of an improving global economy encouraged investors to sell the dollar and buy riskier currencies including the euro, but analysts say this correlation may have broken down”. (Reuters)

May have broken down? Of course its broken down already and the reason why is obvious – traders no longer see a slow US recovery as being able to kick start world growth, when Euro zone remains in a fiscal crisis which could send the world into the biggest recession since the 1930s. The merging markets that have held growth up over the last two years – India, China and Brazil are all slowing up so the fiscal crisis will remain the key focus of investors.

We see euro zone breaking up and the only real question is it a disorderly break up with a collapse of a major nation such as Italy or Spain or do we see the zone slim down in size? What ever happens Euro zone will face a recession for up to a decade.

The ECB is printing money to help banks and this is quantitative easing in all but name and interest rates are going down. None of the measures taken at the last Euro zone summit are getting to grips with the problems short term – investors lack confidence in policy making and want to sell the Euro at every opportunity.

The Euro has moved to a bearish extreme and while we like the short side and will continue to hold it, we have reduced position size to hit a rally. Over leveraged speculators need to be flushed out of the market...

Data from the CFTC Net Traders Positions showed speculators increased bets against the euro to a record on Jan. 3, with net short positions at a whopping 138,909 contract.

Comment

So how far can a rally take us? 1.28 is the first level of resistance and if this gives way expect the Euro to run at 1.30 as stops are hit and at this level its a sell, on falling momentum with a stop behind the gap at 1.32.

We remain short and bearish, as we have been since the rally up to 1.42 and see 1.20 or lower in the coming weeks and by mid Year, we wouldn't be surprised to see the Euro back at par. The outlook is bleak and the euro is a sell on the dollar and just about every other currency at present.

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