Saturday 31/12/2011 8PM GMT 9PM CET

We remain bullish on the USD and have been for months and we see no reason to change our view because the global economy is sliding into recession and when this happens the USD strengthens.

The year ahead will be challenging to put it mildly as we see a big contraction in global trade which has already begun. Of course this is dollar positive and we will look at the two major fundamentals which will support the dollars and look at how individual currencies will fare against it.

Recession and a 25% Drop in Global Trade.

Next year will be one of global recession and we will probably see a 25% drop in global trade finance over the first quarter of 2012. Euro zone will cause huge problems and will also hasten the demise of China, the Worlds number 2 economy. So its not a pretty outlook the evidence of a slowing global economy is obvious already but the real wild card is Euro zone which if the fiscal crisis gets worse will plunge the world into recession.

2 Reasons the Dollar will Go Up in 2012

There are two major fundamentals which will underpin the Dollar in the coming year and while most people know that safe haven flows boost the dollar, the real support for it is the reduction in dollar loans given and also loans which have to be redeemed.

The USA is the country with the worst trade balance of all, the drop in global trade will be strong support for the US, and as the owner of the global reserve currency. The need to repay loans as economic activity slows will keep dollars in short supply and ensure the bull trend remains intact.

Of course the dollar has always risen in times of global recession and the recession is coming and it will be a lot worse than many people expect.

Safe Haven Flows

In terms of confidence in a nations bonds which country would you look to buy? The US is the obvious choice with the largest and most liquid bond market in the world and it will continue to draw funds from countries and individuals because there is simply no other alternative.

Winners and Losers

in terms of the majors we will see some decline by far more than others. The currencies that look really weak to us on the charts are the Euro which is already in a firm down trend and the Aussie dollar which is in our view about to start a huge move down. In terms of the Canadian Dollar and Pound, we see them both going lower but a slower rate than the Aussie Dollar and Euro.

In terms of the currencies we think will hold up the best the currencies are the other safe haven ones the Swiss Franc and the Yen and if things turn really ugly in the global economy, these currencies could soar up on the dollar, as traders pile into safe havens and want alternatives to the dollar.

The Japanese authorities, will of course, try and stop the Yen getting to strong and so far the Dollar is holding up well but the weight of capital taken but to Japan by domestic investors, should a major event such as a Euro zone country go bust, will see the Yen soar.

The Dollar Final Comment

Over the years, I have seen the Dollar be called dead on numerous occasions and on each and every occasion its bounced back and the reason is simple – not only is it the world's premier safe haven currency, it also has strong leadership and is showing signs of reliance even in these trying times.

The Dollar has no rival and despite its debts, confidence in the US among international investors remains high so expect the greenback to continue its upward trend and be a buy on the dips.

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