Thursday 05/12/2012 7.30PM GMT 8.30PM CET

Today the Euro continued to fall and while we are short, we now see a short covering rally coming which will present yet another selling opportunity.

Before we look at the news, lets take a look at our positions.

Trade Summary

AUD: We have been trading the short side since 1.080 and after a great decline our last position, was stopped out on the move above 1.020. We have now moved onto 1.040 and have now sold on falling momentum and looking for lower prices.

GBP: We have now seen prices move back below 1.56 where we are short and were looking for a test of 1.54.

CAD:We were stopped out of a short as we went up to test 99.00 but are now short into this level on falling momentum and were looking for the CAD to move lower and any bounce back to 99.00 is a sell on falling momentum with a stop behind par.

EUR: The Euro falls yet again and our shorts are well in profit and resistance now to rallies is now 1.30 in our view in line with the mid Bollinger band. We are short from 1.33 on our latest position and will be moving to take partial profits tomorrow.

JYP: The Dollar was deeply oversold and we took a long on the momentum turn up yesterday and we have a good profit and will look to bank it at 77.50 tomorrow if we get there. This is an aggressive swing trade and so far is working nicely.

Euro – Going Down But Short Covering Rally

France had a solid Bond auction today and sold 7.96 billion euros ($10.2 billion) of debt, with 10-year borrowing costs rising in the country’s first bond auction of the year as credit-rating agencies appear to be getting ready to cut the nation’s AAA grade. The yield on France’s 10-year bond rose four basis points to 3.35 percent.

Italian and Spanish government bond sales next week, seen as those countries' first major refinancing tests of the year are keeping pressure on the Euro.

Italy remains the really big problem and this can be seen in borrowing costs today as 10-year yield rose 15 basis points to 7.09 percent, while the rate on Spanish bonds of similar maturity increased 20 basis points to 5.64 percent. These levels are too high long term and unsustainable.

Latest data from the European Central Bank shows banks holding cash and not lending despite the ECB providing almost half a trillion euros of discounted three-year loans last month. Bank deposited 443 billion euros in the central bank's overnight deposit facility, down only slightly from the record 453 billion euros deposited the previous day.

The only respite for the Euro in the short term comes from the fact that market has become simply to bearish and CFTC Data showed speculators had shorts in the Euro which were the highest on record for the week ending Dec. 27. These shorts will be shaken out at some point and the rally will be short, sharp and brief.

Comment

We have been bearish the Euro from 1.42 and our latest trade short is into 1.33 and we see 1.32 as capping any upside rallies – look to sell rallies to 1.30 and above on down turns in momentum. Were looking for a choppy trade down to the 1.20 level.

Better Data from the USA

Recent economic data out of the US is showing slow but steady progress and the latest ADP Employer Services said payrolls increased by 325,000 last month, ahead of the consensus estimates which forecast just under 200,000. Applications for jobless benefits fell 15,000 in the week ended Dec. 31. The data comes before tomorrow’s key payroll report from the Labor Department.

Comment

We like long the Dollar and see no reason to change this position long term and while the data is better out of the US, the real reason for dollar strength will come from a contracting global economy and fears of what the fiscal crisis in Europe might bring

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