Thursday 26/01/2012 8.30 PM GMT

The Euro had another push today towards 1.32 but it started to fall back and we think the rally is just about done and lower prices will unfold and this also applies to the other majors. 

In terms of news the markets rallying on the Fed being doveish is bizarre of course there going to be dovish the economy is having a patchy recovery. We will discuss this more in a moment but the global outlook remains dire and in Euro zone – we have a Greek debt crisis, Portugal's yields at record highs and Italy paying over 6% on bonds not exactly bullish and of course the zone is in recession now and it will get a whole lot worse – the recent rally is short covering and its time to load up shorts on weakness

Lets have a quick look at our positions and then round up the news.

Position Summary

We have come in long the dollar on most currencies today and wanted to see some weakness which we have got and we are looking for more tomorrow.

AD: We are short at 1.050 and were looking at 1.060 as key level today and we are trading at this level right now. We are seeing it fall back after pushing up to 1.070 and it could be a reversal day but were still above 1.060. We are looking for it come off from here but will lighten out of 50% as so close and sell on break below 1.060 tomorrow – this rally in the near term looks just about done.

BP: The British Pound rallied to 1.56 and we sold it and it rallied to 1.57 and is trading below this level . Our stop is behind 1.57 and we are looking for lower prices to unfold – if not short already sell momentum weakness tomorrow and place stop behind 1.57.

CD: We are short at 99.00 been up to have a go at par and were overbought and expect a downside break to target 97.00.

EC: We are lightly trading the short side from 1.30 and have relatively wide stop back behind the gap at 1.32 and after another pop up, were settling near the lows and momentum is waning and were getting ready to load up shorts

JY: After banking a small swing trade profit last week, we have banked another small one yesterday on the move above 77.00 and we have gone up through our target now at 77.50 so were banked and will wait to buy the dollar again on a pull back.

The Fed – Boosts Risk Appetite But ...

The Fed saying they are keeping interest rates low, has given a bit of a boost to risk assets and they even didn't rule out QE3 but that will be held in reserve in case of a major crisis in Euro zone and is not on the table now.

The fact is if they do it then it does weaken a currency by default but this is already happening in Euro zone as the ECB pumps huge amounts of cash into the banking system. We saw no real surprise from the Fed statement, they hedge their bets and of course interest rates will stay low until the economy is firing on all cylinders that's sensible in our view. The US is in far better shape than euro zone though in terms of the economy and a strong central policy.

Over in Euro Zone

Greece remains in focus, with the top negotiator for private creditors set to resume talks later on Thursday with officials on a debt swap deal as we move to the March deadline when Greece faces huge bond redemptions and needs to re finance. The European Central Bank, which is the Greek government's largest single creditor, was told by IMF chief Christine Lagarde said public sector holders of Greek debt should also take losses

Italy's Ten-year Italian bond yields were just above 6 percent, at the auction today down from peaks late last year above the 7 percent crisis level but there still way to high long term. Over in Portugal five- and 10-year government bond yields to euro lifetime highs. Portugal will need to restructure at some point just as, like Greece, and Ireland may have too so there the debt crisis remains.

There is no real short term solution the funds for bailouts are way to small at present and structual change is needed within the zone to restore confidence like a euro wide bond but that's not coming any time soon. In the meantime the zone has slipped into recession and will stay in recession for years to come.

Unemployment is seen as to high in the US but Europe is even worse -unemployment of 10 percent, rising to 25% in Spain and a staggering 45 percent among the young in countries such as Spain. There is no capital available for investment as many countries start austerity programs which will strangle growth even more.

In Europe the banking system has received massive injections of cash which is QE in all but name but this money is being hoarded by banks, rather than lent and as we have said before – if you print money (which amusingly the EU criticised the US for doing a while ago) a lower currency will follow.

The recent short covering looks just about done and we would expect the Euro to slide to at least 1.20 in the next few months.

Dollar Dip is a Buying Opportunity

The stock brokers and banks have got their sunglasses on and see no real problems in the globla economy which can't be overcome but they can enjoy the stock rally while they can because we have huge problems ahead and this makes the dollar a buy on the dips, as global growth falls and the Euro zone fiscal crisis continues.

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