Thursday 19/01/2012 8PM GMT

The Euro is continuing its short covering rally today and we may see some more short term strength but in our view this rally is on borrowed time but today the bulls are out and stocks and risk assets are higher but it won't be for long.

I read this on a news wire today:

“World stocks rose to their highest this year and the euro gained on Thursday as good demand at European government bond auctions outweighed worries about a messy Greek debt default, and fresh U.S. data added to hopes for the global economy.” Reuters

Hopes of a global recovery? We don't think so and things will get a lot worse, the US is doing better but the US is not the problem. Euro zone is and the fiscal crisis is going to get worse before it gets better and we also have the prospect of a hard landing in China. This of course is just our opinion but in the short term with the dollar pulling back, we have moved to protect our positions and bank some profits.

Trading Summary

AUD: The Aussie has key resistance at 1.040 and its being tested right now and at the time of writing, were just above this level. If this level holds and support gives way at 1.020 it will confirm a near term top and we expect a big downside break with the Aussie dollar declining to 80.00 in the next few months.

GBP: We have been trading short since 1.62 and our latest short taken was at 1.54 we broke hard and have banked 50% of our profit. We are looking to add it back in on this bounce occurring now and see key resistance as 1.55.

CAD: Key resistance is 99.00 and key support is at 97.00 – we have been selling since the rally up to 99.00 and remain bearish. Were moving up to test 99.00 right now and we think this is a great level to sell into on falling momentum.

EUR: We have been shorting the Euro since the 1.42 level and our present short is at 1.33 and we banked 50% on the move to recent lows – were now alert for a sell but we are above the mid Bollinger band and in case stops are run we have a stop at 1.3050 to protect our position. Longer we see far lower prices in the Euro but were very oversold and its a question of how far short covering goes. Short term, we could see more strength, long term we see far lower prices

JPY: We are triggered long on the break up today and will look for a quick profit – we want to see follow through tomorrow or we will bank out position out. Our target is 77.50 – 78.00.

Euro Zone Short Covering Rally Continues

Investors seem pleased about the news that the International Monetary Fund would seek to more than double its funds by raising $600 billion to help countries deal with the fallout from the European debt crisis. This is good news? Even at

Greece is still talking to hits debtors which supported sentiment despite reports there far apart on a bond swap deal, seen as crucial if the country is going to avoid default. Our view is we will avoid a default for now but Greece needs a lot more money than budgeted for in the future as the IMF recently pointed out. It will avoid default in our view - but its long term outlook is gloomy and of course, we have the bigger countries of Spain and Italy which could default.

US stock Markets Soar

US stocks are off to the best start in 25 years and the US is improving but the dark clouds in the global economy of a Euro fiscal crisis which looks set to continue and a hard landing in China, should bring investors back to reality.

While the dollar is correcting,we think this dip is a buying opportunity and see it as a buy on the dips.

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