Tuesday 29/11/2011 9PM CET

The talk of the IMF helping out Euro zone may provide a relief rally for the Euro but that will just be a selling opportunity – the zone is doomed in its present form and the Euro will trade a lot lower.

Lets look at the news and do a round up of our positions. Let's start in the US...

Consumer sentiment rebounded in November from a 2-1/2-year low last month and retailers reported strong sales as the holiday shopping season began. The Conference Board said its index of consumer attitudes jumped to 56.0 from 40.9 in October, hitting the highest level since July – good news? Well think consumers are just forgetting their problems for time being but it won't last. Unemployment remains above 9%, house prices fell and American Airlines filed for bankruptcy.

The US has a long hard road to recovery and people just wanted to forget their problems for while in the holiday season so they spent some cash. I saw one broker who said “ this number is the turning point” I don't share his optimism!

The world's biggest economy is struggling and now the world's number 2 is going to get hit hard:

The cost of hauling goods to Europe from China is falling dramatically as the price for shipments to Europe is down 39 percent to $511 per twenty-foot box since Aug. 31, according to figures from Clarkson Securities Ltd., a division of the world’s biggest ship broker. Its one of China's big export markets and while not many investors have it factored in - the world's second largest economy is heading for a hard landing:

Exports are down and there is no domestic demand to pick up the slack. We also have a housing bubble and local Governments hugely in debt and the days of big growth are over. In fact, we think China will be lucky to retain its place as the no 2 economy in the world.

Summary

We took 50% of our profits last week on the currencies below and have now placed banked profits back in, in both the Aussie and Canadian Dollar yesterday and are waiting to do the same in the Pound and Euro

AUD/USD: Were short AUD from 10800 and have been swing trading all the way down and took 50% of our profit in last week and said at the weekend a bounce to 1.000 would be a good selling opportunity, its occurred and we have loaded shorts back in. Were at par now and see this as a good level to sell into with protection behind 1.010 and the mid BB.

We see the 80.00 level being tested in the next few months and see this as one of the best trends on the board.

GBP/USD: We have been trading the short side of the Pound since 1.61 and its old off hard and last week we took 50% of our profit into chart lows and are now waiting to place this trade back in and see 1.57 as a good level to come in short.

CAD/USD: We have been trading the CAD short since 1.010 and loaded up on the failure to take out 99.00 and we fell hard and last week moved to take 50% of our profit and today we placed it back in on the rally to 97.00 which is just below the mid Bollinger band and were looking for new chart lows

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 expecting a rally and think we could get one to around 1.36 which we think is probabl, as we have such a large speculative net short position.

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 will move to the sidelines and look to get long on a dip to 77.50.

Euro Zone – Doomed in Its Present Form

A plan hammered out last month to beef up the of the EU rescue fund to 1 trillion euros ($1.3 trillion) with leveraging will be “very difficult to reach,” Luxembourg Finance Minister Luc Frieden said today.

Only In euro zone could you arrange this a while back say you are going to do it and then not be able to do it, its ridiculous. As we said back then the reason they didnt agree at the time was bad news and 1 trillion dollars is NOT enough – if it were 5 million maybe but its to small so what do the EU propose next?

The euro zone is discussing the option of financing aid for Italy or Spain by using money from national central banks to finance International Monetary Fund cash - but only as a final option.

The only that is capable of putting up the cash needed to bail out a euro zone country is the ECB, but European Union law doesn't allow it to directly financing government borrowing, as Germany has been keen to point out on numerous occasions However, the ECB can lend to the IMF. An opinion, issued by the ECB on Oct 18, 2010, on the request of the Austrian central bank, makes this option one which is permitted under EU law:.

"...The financing by national central banks of obligations falling upon the public sector vis-à-vis the IMF is not regarded as a credit facility within the meaning of the Treaty,"

Well that doesn't address the major problem that Euro zone faces which is its simply not integrated and policy making is fractured - but it could help of course short term. Longer term the zone in its present form needs to re structured – Period.

Italy tried to sell 3-year bonds on Tuesday and had to offer a euro life-time high interest rate of nearly 7.89 percent to sell 7.5 billion euros ($10 billion) this on 120% debt to GDP, they had better do something quick to avoid the inevitable. I am like many people frankly amazed at how Euro zone has let the fiscal crisis get out of control to such an extent it threatens a global recession.

Comment

Were sticking with the view we had several months ago that Euro zone is dead in its current form and the only thing to ponder is will there be a re structure of the zone ( the best option) or a disorderly break up ( worst option) either way, Euro zone is in recession, interest rates will fall and the debt will take yers to sort out. In our trading were short the Euro from 1.42 and have been swing trading all the way down and took profit last week into the lows.

We have resistance at 1.34 and key resistance is 1.36 which is the mid Bollinger Band. We do have a lot of speculative shorts but expect them to trigger a good short covering rally but longer term the trend is down and we expect to trade below 1.30 shortly.

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