Sunday 15/01/2012 2.00PM GMT 3.00PM CET

We ended the week, adding back our banked Euro profit as we hit resistance and it plunged and we also think that major tops in the Canadian and Aussie Dollar are being confirmed and see big falls in commodity prices which will pull these currencies lower.

Trade Summary

GBP: We have been selling the Pound short all the way down since the top into 1.62 and still remain bearish and are short again on the move through 1.54 but we have taken 50% of our profit just in case of a bounce which could take the Pound back to our entry

CAD: 99.00 key resistance on the upside. We remain short from 99.00 and we put our banked profit back in which we took on Thursday and we are now seeing the bears take control and see far lower prices ahead.

EUR: We are short from 1.42 and this has been a trend followers dream – We crashed again on Friday and its a question of simply selling the bounces to resistance and covering partial profits near support. Target is 1.20 or lower and we could even see par if the fiscal crisis blows up.

JYP: We took the bounce up in the dollar due to it being oversold and were now waiting to go long again on a turn up above 77.00 but we have turned down from this level today.

Euro Zone – Going Down But Sharp Rallies Along the Way

The Euro is going down but its oversold and there will be short, sharp rallies to the upside but the fiscal crisis is getting worse I saw this on a news wire today:

“In a conference call with reporters and analysts after downgrading nine of the euro zone's 17 countries, Standard & Poor's said it saw continued risks from the debt crisis that has overshadowed Europe for the past two years and said the single currency area was heading towards recession”. (Reuters)

The S&P downgrade is no surprise but euro zone heading to recession? Its already in recession from Q4 and things are going to get a whole lot worse as Euro zone leaders, seem to have no idea how to solve the problems. Let's take a statement from German chancellor Merkel as a prime example:

"We are now challenged to implement the fiscal compact even quicker ... and to do it resolutely, not to try to soften it," she also said: “"We will also work particularly to implement the permanent stability mechanism, the ESM, so soon as possible -- this is important regarding investor trust,"

The above won't instil trust the fiscal compact is long term and the rescue fund is to small and to late, investors want to see some innovation like a Euro wide bond which of course Germany opposes because it will end up paying for it!

So we have debt levels at high levels and borrowing costs rising and the time clock is ticking for a possible default. Even if we don't get a default, the Euro is heading south:

Growth is shrinking at a time, when many countries are going to cut grwoth back with austerity measures, the ECB is prining money to support banks and prining money means a lower currency by default. Finally, interest rate falls and more money printing will occur. Even if we avoid a country defaulting, Euro zone faces a deep recession which could last a decade. Talking of a country defaulting...

Banks broke off talks after failing to agree with the Greek government on how much money investors will lose by swapping their bonds which increases the chances of a default. As we said when the Greeks first sought aid, the smart thing to do was not to bail them out but Euro zone did and now they have had to bailout even more countries and the ones who could next seek funds are simply to big to bailout. Euro zone has no treasury, no centralized policy and no ideas and that's bad news for Euro zone and the global economy.

China Going Down and Dragging Commodity Currencies with It

China's official reserves fell to $3.18 trillion in the final quarter of 2011, signaling that the days of rampant export-led accumulation of foreign currency are Over. a $20.6 billion, or 0.6 percent, fall in reserves in the final three months of the year, Reserves dropped in November and December, the first consecutive monthly fall since the first quarter of 2009, which shows the impact that a falling trade surplus and an outflow of speculative funds. Data this week also showed Chinese exports growing at their weakest rate in over two years in December, helping reduce China's 2011 trade surplus to a three-year low of $155 billion.

We have written a separate article on the demise of the Chinese economy today on the blog if you want to read more but here we just want to make the point that investors don't see a hard landing in China and are ignoring the facts and as we discuss in our other article, there is nothing the Chinese can do to kick start demand – watch the Aussie dollar get hit hard when investors digest this fact.

Risk Assets – Huge Falls are Coming Safe Haven Currencies Going Up

Risk assets are holding up well so far in 2012 but it won't last and we expect to see big falls in global equity markets this year.

GET an FX Course Plus:

In Depth Technical and Fundamental Analysis on the Link Below

To read more, on the major currencies and their outlook from a technical and fundamental perspective and to get a 250 page course of proven strategies, tools daily technical updates and full 1-on-1 support – Go too:

http://www.learncurrencytradingonline.com/subscribe.html