Monday 28/11/2011 9PM CET

The Euro and other risk currencies were up today on short covering nothing more and the rally will end and the dollar will continue its upward march. The problems in Euro zone are going to get worse before they get better and the optimism today on a solution to the crisis in our view is misplaced.

Everyone wants to be optimistic but as we said at the weekend the global economy is slowing up and Euro zone wont have a happy ending and we also have the strong possibility (although no one seems to see it happening) of a hard landing in China to add to the gloom which we discussed at the weekend. Euro zone is dead in its current form and China, will slip into decline and be lucky to hold its position, as the world's number 2 economy in the years ahead. Before we look at the news in Euro zone, lets look at a quick round up of our positions.

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.

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. 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 is a great selling opportunity.

USD/JYP: We remain dollar bullish on break of 77.50 supported by momentum and we would like to take profit just below 79.00 and tried today and missed it but expect another chance tomorrow.

Euro Zone Looking for a Solution But the End is Near for the Euro

Euro zone is dead in its current form as we said in our weekend report. There will no happy ending for the zone, the best result is a break up of the zone which sees weak countries leave and the others are closer on an economic, fiscal and political level. The worst result is a disorderly break up of the zone. Policy makers are doing to little to late and the small problem which was Greece has infected the whole zone.

Today, German Finance Minister Wolgang Shaeuble called for treaty changes to tighten budget discipline among member states.

The approval of the rules will clear the way for the 440 billion European Financial Stability Facility (EFSF) to attract cash from private and public investors and could multiply the EFSF's resources. The European Financial Stability Facility may insure the bonds of countries in debt with guarantees of 20 percent to 30 percent of each issue, depending on market circumstances, according to EFSF guidelines that finance ministers will discuss when they meet in Brussels tomorrow.

Big deal but the this isn't going to restore confidence at all and the fund is far to small anyway even at a trillion dollars it doesn't have enough at all the debt of Italy alone is 2 trillion and that's without all the other countries in debt needing money and those that have a good possibility of falling into debt. Finally, doesn't get to the route of the problems in Euro zone.

Germany and France, have stepped up a move to acquire powers to reject national budgets in the euro zone that breach European Union rules ahead of an EU summit on December 9.

Really?

I think the phrase that sums up the above is “shutting the gate after the horse has bolted” Don't they understand the future budgets are no concern of investors right now. What investors want to see is action right now to solve the crisis and that means using the ECB which of course Germany does not wish to do but it looks like the only option as borrowing costs soar across the zone.

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 years 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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