Wednesday 07/12/2011 8PM CET

Germany expressed pessimism over the outcome of a European Union summit this week and the way its going the final summit to solve the crisis will solve nothing and we are looking for the end of the Euro in its current form...

Not only are we pessimistic about Europe, we are also pessimistic about the whole global economy.

Euro zone is on the brink of collapse, the US, Japanese and UK economies are struggling and in the last week we have seen the tiger nations of the east start to slow up – India and China, have both started to post lower growth.

We see China being hit hard, as we have stated in previous reports and now, the major economy of South America Brazil, has seen it just post zero growth in recent months. In addition, its got an interest rate of 11% so not hard to see the boom in Brazil is now finished and the Brazilian Real looks a fantastic sell long term.

World economic growth is slowing and of course, we could see a global recession if the worst happens in Euro zone which it could the way things are going.

Position Summary

We have reduced exposure in all open positions by 50% and banked some profits, we expect a nervous market this week and will look to put these profits back in on rallies or breaks of support.

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 and were trading at this level right now which is nearby resistance and 1.010 is near by support

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 hard and were now back up testing mid Bollinger Band resistance at 1.57 and we see this as a good level to sell into with protection behind 1.58.

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 at 99.00 right now and this looks a good level to sell into protection behind the par level

EUR/USD:We were short from the pop up to 1.42 and we have been swing trading all the way down and took some profit last week into the lows.1.3450 is near term resistance to sell back to (mid Bollinger Band) with protection behind 1.36. A break of 1.33, will see accelerated selling.

USD/JYP: We bought the dollar on the break of 77.50 and sold it after it failed to follow through 78.50, its a small profit and we moved to the sidelines and were waiting to buy a dip and see if 77.50 hold 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 – Anyone Got Any Confidence in the Crisis Being Solved?

Its actually become boring writing about this and I actually find myself getting a little angry about - when a situation is so serious, Euro zone policy remains so incapable of seeing what the solution is and making a concerted effort, to get it in place and protect the living standards of hundreds of millions of people. Let's look at what's been going on today in the mad world of Euro land.

President Nicolas Sarkozy and Chancellor Angela Merkel have given their plans to amend the EU treaty to ensure stricter budget discipline and fiscal control in a letter to European Council President Herman Van Rompuy on Wednesday. The French finance minister was quoted as saying that:

The leaders of both France and Germany are lining up a "powerful" deal is reached to restore market confidence and stop the fiscal crisis getting worse.

"Neither Nicolas Sarkozy nor Angela Merkel will leave the negotiating table of this summit until there is a powerful deal," French Finance Minister Francois Baroin.

Well we have heard all this before but treaty change and stricter budget discipline are all well and good for the future - but the market needs to see something now. What they want to see is the ECB being used aggressively and longer term a common Euro bond – will that come from the meeting on Friday? We doubt it unless there is a complete turn around by Germany and that looks unlikely. While France is optimistic the Germans are striking a cautious note. According to Reuters an unnamed Official was quoted as saying:

"I have to say today, on Wednesday, that I am more pessimistic than last week about reaching an overall deal ... A lot of protagonists still have not understood how serious the situation is," the official told a pre-summit briefing. Reuters

Of course he's right - Euro zone policy has been re active not pro active and my view is - euro zone policy makers have never really taken the situation as seriously as it should have been. The rescue fund being a prime example' they decide to leverage it ( but the size proposed was to small anyway) and then left funding it till later! They then see its to small and want to beg the IMF for money!

A major problem of course is the split within in Euro zone and Germany and France may put on a united front but there are deep divisions between them, as we have seen over the last few months. The summit doesn't look like it will solve the crisis so what will happen?

We see the Euro as dead in its current form and see countries leaving and a slimmed down zone emerging or a disorderly break up which will cause chaos in financial markets but whatever happens there is no happy ending.

Lets hope the breakup is orderly but even if it is, Euro zone is already in recession, the region is saddled with debt which will take years to put right and interest rates are going to be coming down.

Its hard to have anything but a bearish outlook on the future of Europe ( although we want to be bullish for the peoples sake) we see no solution. The Euro may have some sharp short covering rallies but these will be brief and short lived and we see the Euro easily hitting our target of 1.30 which we set when we first sold the Euro on the pop up to 1.42 – when everyone was bullish Euro, how times have changed.

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 which is key resistance and a break of 1.34 cements the down trend – were looking for the Euro to trade below 1.30 in the next few weeks. We will see some good spikes up as we are oversold but the bearish backdrop, will see the Euro trending lower in the months ahead.

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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