Friday 09/12/2011 7.30 PM CET

The summit in Euro zone was trumpeted as a “new beginning” by German chancellor Merkel but its the beginning of the end for Euro zone. The fiscal crisis will get worse, as the summit solves none of the immediate problems and it won't be long before Italy and other Euro zone countries such as Spain come under attack. 

Before we look at the summit and why the fiscal crisis will continue, lets take a look at our positions:

Position Summary

For now we closed out all our open positions AM, as a precaution against a price spike up and there should be one, to flush out weak speculators. The Euro is extremely oversold and if it rallies it will drag the other risk currencies higher. We have banked our chips for now and will re enter on shorts, on rallies in the majors to resistance on falling momentum or clear breaks of support.

AUD/USD: We have been trading short since 1.080 and we have made some great profits and while flat now we don't expect to be for long and see resistance at 1.040 which we will sell into or if we don't6 catch the rally, we will sell a break of 1.010. We are sticking with our view that the Aussie dollar will trade down to the 80.00 level in 2012 and see it as a trend with fantastic long term downside potential.

GBP/USD: We have been trading the short side of the Pound since 1.61. We see 1.58 as good resistance and will sell a rally to this level and we are looking for a break of 1.56, to cement the down trend. Look to sell a rally or a breakout which ever comes first.

CAD/USD: 99.00 level and see this as a good level to sell back to and a break of 97.00 support, will cement the down trend. Again sell a rally on falling momentum or a break of support

EUR/USD:We were short from the pop up to 1.42 and we have been swing trading all the way down and made some really nice profits and we expect more to come. 1.3460 is near term resistance and 1.36 is firm resistance and we would sell any rally with stops behind 1.36. In terms of a downside break – if we take out 1.3250, we expect the Euro to test and break 1.30.

USD/JYP: We moved to the sidelines and were waiting to buy a dip and see if 77.50 holds and if it does and we turn up and take out 78.00, we could see a run at the highs.

Note: While we view the dollar as bullish, we see some good spikes up coming in the majors particularly in the Euro, due to its heavy speculative short position but any big spike in the Euro is a selling opportunity and we see the fiscal crisis as getting worse in the months ahead not better.

Euro Zone – ECB Stance Pressures Markets

Twenty-six of the 27 EU leaders agreed to pursue a stricter fiscal and budget guidelines with automatic penalties for those who do not adhere to the new guidelines. The deal isn't due to be fully ratified until March 2012 and there are serious doubts about whether it will work. Britain said it could not accept proposed EU treaty amendments and Sweden, Hungary, the Czech Republic expressed doubts.

This didn't stop enthusiasm from Germany which got exactly what it wanted from the summit. The French and Germans couldn't disguise their glee but the elation will be short lived:

"This is a summit that will go down in history," he said. "We would have preferred a reform of the treaties among 27. That wasn't possible given the position of our British friends. And so it will be through an intergovernmental treaty of 17, but open to others."

"This is a breakthrough to a union of stability," German Chancellor Angela Merkel said. "We will use the crisis as a chance for a new beginning."

Its the beginning of the end of Euro zone and its obvious why – the tighter discipline that needs to be implemented, should have been done years ago - not now! The problem now is countries such as Italy and Spain, remain in big trouble and there is no way of protecting it from market attack unless the ECB is used more aggressively and this has been ruled out and there is no move to issue so called Euro bonds but unless this happens – Euro zone will continue to remain in crisis.

German exports fell in October and French industrial output ground to a halt showing the Euro region is in recession. German exports dropped 3.6 percent from September In France industrial production was flat in October after falling 2.1 percent the previous month.

The two major nations of Euro zone are going into recession and we have debts all over the zone with many countries who may still need bailouts with Italy and Spain close to falling. The Euro zone may have put in tighter fiscal controls but it will make no difference in the short term and the market will see the summit for what it is – Trying to dodge what has to be done now (spend money) and hoping the market will believe that this is enough – but it won't be long, until the debt crisis reignites and when it does, it will force the issue of brining the ECB in to restore confidence.

Merkel and Sarkosy might be happy for now and after making snide remarks about Britain, David Cameron said through gritted teeth:

“We wish them well,” Cameron told reporters “My judgement was that what was on offer just wasn’t good enough for Britain. It’s better to allow those countries to do their own thing on their own.”

I think everyone will wish them well but can they sort the crisis out long term?

We doubt it and it many not be tomorrow or next week but Euro zone is finished in its present form and we will soon, be heading towards the inevitable end to this debt crisis. The crisis will climax with a major country going bust and the ECB having to be bought in and if it isn't, the global financial system will go into meltdown. Lets see what happens - but we could not be more bearish about the future of Euro zone.

Comment

We could see a relief rally in the Euro because its so oversold but this will be just weak speculators being hit on stop and we see longer term the Euro continuing its downward path. 13460 is near term resistance and 1.36 is firm resistance and we would sell any rally with stops behind 1.36. In terms of a downside break – if we take out 1.3250, we expect the Euro to test and break 1.30. We have been selling the Euro since 1.42 and have made great profits and we see more in the months ahead.

Final Words.

Euro zone remains in a mess the UK, Japanese and American economies all remain sluggish and the nations of the East which have provided most of the economic growth in recent years are slowing up and we saw bearish numbers out of China and India this week and to add to the gloom, we saw Brazil, the powerhouse nation of South America see its growth slow to nothing – so not a cheerful end to the week and if you do see a rally in risk assets – look to sell it.

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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