Thursday 08/12/2011 8PM CET

The ECB ruled out a big role in solving the debt crisis which saw the Euro and other risk currencies come off today and they will fall further. Euro zone is dead in its current form and we see the global economy as extremely bearish and that means the Dollar remains a buy on dips. 

Before we look at the news let's look at our positions.

Position 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 with stop at 1.040 and we saw a rally up to this level and now we have dumped – a break of 1.000 cements the down trend.

We are going to turn down here in our view but could have one more blow off to the upside. We see the 80.00 level being tested in the next few months and see this as one of the best potential trends on the board.

GBP/USD: We have been trading the short side of the Pound since 1.61 and its sold off after rallying through the mid Bollinger band and testing 1.58. We are now looking for a break of 1.56 to cement the down trend

CAD/USD: We are short from the 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. Were below 99.00 which is resistance and heading to break 97.00 support.

EUR/USD:We were short from the pop up to 1.42 and we have been swing trading all the way down and prices have now fallen below 1.34 which is near term resistance and 1.36 is firm resistance, a break of 1.33 cements the down trend

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. We are therefore be cautious and will wait before loading up positions ...

Euro Zone – ECB Stance Pressures Markets

Interest rates were cut as expected to 1% today and this news was effectively discounted by the market the main cause of concern though for investors, was the attitude of the European Central Bank (ECB) which caused the Euro to sell off.

The ECB poured cold water on hopes of increased to help fight the fiscal crisis just before European leaders gathered for what the French president billed as last chance summit.

ECB President Mario Draghi played down the view the ECB would step into the fray and increase bond buying He said the Euro zone's rescue fund should remain the main Weapon to support the Bond market despite and added it was illegal for the ECB or national central banks to lend money to the IMF to buy Euro zone bonds which many investors believed was one option the ECB could take and the French were pretty keen on this option.

in a speech to European conservative leaders French President Nicolas Sarkosy made it clear how serious he thinks the crisis is:

"Never has the risk of Europe exploding been so big," and he continued... "The diagnosis is that the Euro, which should inspire confidence, is not inspiring this confidence," the French leader said. "If there is no deal on Friday, there will be no second chance."

Well the risk are big - but what can the leaders gathered together do about it?

The answer in our view is the only way out would be for the ECB to support the bond market and restore confidence but that doesn't look like an option yet. All the endless other ideas on treaty changes, budget restraint etc. are just measures taken after a situation has got out of control. Sure they are a good idea for the future but the market is not interested in the future, it wants to see action now to stop the crisis getting even worse.

We need to see action now with the ECB taking a bigger role if that doesn't happen ( and it looks like it wont) the Euro will continue to decline. We have been saying for months the Euro in its current form is dead and its now just a question of whether, we see a slimmed down zone with countries leaving or we have a disorderly break up with a country going bust. Lets hope it's the former and not the latter which has the potential to trigger a global recession.

The outlook for the zone if it does stay together is gloomy – huge debts and its going into recession which will take years to solve.

Comment

We remain short from 1.42 and placed our banked profit taken into recent lows back in the market as we came off 1.36 and nearby resistance of 1.34 has given way and were now heading to 1.33. If this level breaks, we expect to see a test of our target of 1.30 and then see prices head for 1.20 or lower. We will see some good spikes up along the way, as we are oversold but the bearish backdrop, will see the Euro trending lower in the months ahead.

Over in the USA ...

The Euro zone is having an impact on the US (as it is on the whole global economy) Household wealth in the U.S. fell from July to September for a second straight quarter as the European fiscal crisis saw stocks fall and house prices decline.

Over In China...

China is slowing up and we see our call from a few months ago od a hard landing coming to frution. Numbers out included, the weakest manufacturing performance in more than two years, falling home sales and export growth contracting and of course there are huge debts in the economy and local Government which are a reflection of - a record 17.6 trillion-yuan ($2.8 trillion) lending spree under Premier Wen Jiabao in 2009-2010 amid the global recession.

Funny though saw this quote on Bloomberg today:

“China, simply put, is the best managed major economy on the planet,” said Anthony Stephens, an equity trader with Standard Chartered Bank in Hong Kong” Bloomberg

The best managed economy on the planet? I Don't think so - The boom was built on a manipulated currency and reckless spending. The Chinese can only export to keep growth up ANDF THE as they have not spread the wealth to the majority of the population who worry about not having enough to eat, rather than what TV they should buy. But there are many others bullish the Chinese economy including the IMF and Goldman Sachs:

Goldman Sachs, in a Dec. 1 report, thinks China's gross domestic product will rise 8.6 percent next year and 8.7 percent in 2013.

Well maybe they have stock to sell but as we have said for a long time, the Chinese boom is over and it will be lucky to hold onto its place as the world's number 2 economy. Exports are going down and there is no domestic demand to pick up the slack, the debts which have been built up will cause huge problems.

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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