Target for the current EURUSD downtrend is 1.3855/1.3533/1.3210

With the announced bail-out plan, the situation tension is somehow eased but actually the fund from the rescure package is just enough for short term plan, it does nothing to resolve many other longer term. The fact that Greece is sitting on debts that are expected to hit 290 billion euro this year and the cost of servicing future due debt is already too high (10-year bond yields rose to 8.56% lately, the most since 1998 and more than double the rate on comparable German debt) which Greece themselves admit it would not sustainable. They can’t expect from the income of their main industry tourism alone either.

There are 2 solutions for Greece :

- Pay the debt off ( Unlikely)
- Declare bankruptcy ( Probably )

The second option will likely happen, because the recure money from the package of EU and IMF is not sufficient , even if they increase it significantly , it still can’t help resolve the crisis while citizens from other EU countries don’t like their money to rescure other mistake either.
The longer this rescure plan continues, the more debt will be built up and the more dangerous the situation will get. On the other hand, with Greece’s default, the Euro currency will depreaciate much more and the big countries in EU like Germany, France, Italy will benefit and they prefer this scenario since they are major exporters and their product will become cheaper and more attractive.

Here’s How my Profitable projection system project the EUR/USD target automatically based on it's internal formula and market analysis.

This indicator shows the predicted move of the price in the near future (pink). This indicator doesn’t mirror the last move and reverse it like many others. But it really predicts the next move based on very complicated formula and market analysis. It’s better used with  1 Hour and 4 Hour chart. You can see how precisely it predicts EU drop lately compared with reality, somehow it know the crisis, lol.
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BY: PAUL DAY :
Tthere is a very good correlation between UK yields and the direction of EURGBP which suggests a further shift higher in the UK yield curve should see the Pound outperform. As such, I continue to favour EURGBP to head lower, potentially to the 0.85 region over the next few weeks.

For the EURGBP trade, we continue to look at the good correlation between UK 10yr Gilt Yields and the GBPEUR rate. Since the collapse of Lehman, this correlation has worked very impressively, with a rise in Gilt Yields being coupled with an outperformance by Sterling. Over the turn of the year however, Gilts yields rose 50bps, with no corresponding bid to the pound.  We look for this correlation to remain steady and expect EURGBP to drift potentially as low as 0.8450-0.8521 during the first quarter. 

The news that Abu Dhabi would be assisting it's ailing neighbour to the tune of $10bn has seen a sharp reverse in Dubai shares overnight. Indices in the UAE are up between 7 and 18% at present.

Nakheel has stated it will be able the fulfill it's Sukuk obligations for 2009 in the next 14 days and Abu Dhabi have also stated they will provide assistance to local banks.

The kneejerk reaction has been for a small jump in equities in the Asian session with the likes of StanCHart - one of the more exposed global banks to the region, moving into positive territory for the session. Despite a small jump in carry trades on the news, the market in currency space has been unable to retain initial gains with USDJPY again drifting below the 89 level and GBPJPY now down 1 yen on the day.

The post-Dubai news rebound in EUR/USD has stalled at 1.4686. The move saw an expansion of the daily range of over 50% suggesting that significant impact has been seen due to the news setting up what I call a “Big News Day Trap” trade. If, after seeing such a move the origin of the news at 1.4622 trades again during the global session, all of the buyers on the news will be underwater and will most likely exit their long positions in stop-loss selling which typically lasts for 1-3 days. My strategy would be to place a sell stop at the 1.4622 news origin (good until the US ‘close’). If the short trade is triggered, I would then place an initial stop just above today’s high so far, looking to trail it as the trade (hopefully) moves into profit. Objectives will be set if the trade is triggered.

Update 15 Dec :

The fallout from the potential Dubai default continue to reverberate amongst the markets much as one would expect. For the country itself, CDS spreads have widened dramaticallyu with 5yr DPWORLD CDS being priced at 800-950 this morning - but bank shares have recovered a touch and the CDS is trading on the bid side.

Stocks generally remain under pressure and a flight to quality bid is helping both the US Dollar and the US treasury market. There remains the possibility the Abu Dhabi will step in and provide assistance - and if things get critical I expect this will occur. The market reaction again shows how easily people have jumped on the concensus trade and how vulnerable markets remain to aggressive counter-trend shakeouts.

The problems in Dubai have the potential to reemerge in many other regions of the world, with the eastern European corridor another potential trouble spot if the problems escalate.

As many people know I have not been a fan of the liquidity inspired rush to commodities/commodity currencies and much of that has to do with precisely these problems which I think will plague the markets for the next few years. The rise in Aussie and Kiwi dollars and the rise in many hard commodities has come about mainly due to artificial stimulus and not to sustainable long-term growth.

I think that by this time next year, hard commodities and the commodity currencies will be markedly lower than current levels, the US Dollar will be higher and both stocks and bond yileds will have drifted - the latter seeing significant curve flattening, even if some emergency front end rates have been taken back.

One thing to watch out for is the possibility of some Japanese intervention here. The breakdown in USDJPY has taken the yen relative to the Yuan to very elevated levels and as you know, I believe much of the rhetoric regarding the US Dollar weakening is actually directed at the Chinese and their very uncompetitive currency practices. Don't discount some unilateral Yen intervention if USDJPY heads significantly below 85.

The Chicago Mercantile Exchange, or CME have just announced it will allow members to use Gold as collateral against futures and options positions traded on their exchange. I expect this has come about due to member demand and folows the birth of some hedge funds during the year that have started products based in Gold.
With concern over the long-term validity and stability of FIAT currencies and bonds priced in same, I would expect other exchanges to follow suit over the months ahead.

In what is traditionally a busy week for data, we are a quarter of the way through the key central bank meetings that are forthcoming. After the RBA's decision to hike the Australian cash rate to 3.50% we now look towards this evening's FOMC decision ahead of both the Bank of England's MPC and ECB decisions tomorrow.

The rake hike from the RBA was well flagged, but disappointed a market set up for a potential 50bps and the subsequent noises from the RBA were much less hawkish is suggested by the Australian yield curve. This continues to weigh on the Aussie dollar in the short-term and, though further rises are expected during the period of rate normalisation, I remain concerned that the expected rate hikes won't be delivered as aggressively as the market believes. Whether this means we have already posted a medium-term high in AUDUSD remains to be seen and this will still be governed by the overall market risk appetite. In this instance it is interesting to see how stock markets have struggled over the last few sessions, though the key technical support from a DeMark aspect remains below here in the Dow at 9599. Until this level is broken, the risk trade remains on and pullbacks in the AUDUSD remains corrective rather than a change in trend.

For the FOMC tonight, there is an outside chance we will see alterations in the wording to suggest the end to easy policy will happen sooner rather than later. However, my view is such a change in the policy statement is very unlikely. The markets remain very edgy as was noticed when the cessation of parts of the under utilised TAF and TSLF policies was announced recently and I expect the FOMC members will view today as too early to attempt to rock the boat. I expect a very similar policy statement tonight to the last meeting which at the margin would be USD negative, but it will be worth focussing on the ability of the dollar to sustain recent gains should it suffer any post FOMC jitters. With the negative Dollar/Equity correlation remaining pretty much in place, the direction taken over the remainder of this week may wekk drive sentiment into the end of 2009. The key phrase to watch for regarding rates is 'exceptionally low for an extended period'.

The Bank of England remains caught between a rock and a hard place. Though there has been talk from certain MPC members of the end of the now spent QE program, the bare economic statistics suggest the market is right in looking for at least another £25bn expansion in this APF strategy. Credit passthrough remains minimal and I would actually err on a rise by £50bn, purely so they have enough leeway to keep the purchases ongoing until the next quarterly inflation report in February. Of all the meetings this looks to have the biggest binary risk in the currency space. GBP has been extremely volatile recently with money markets flying all over the place. Should QE not be expanded there is a risk that Sterling flies considerably higher - remember there are still some entrenched GBP shorts in the market even though the speculative shorts on the CMA have dropped from a all time high of 75,000 contracts to around 53,000 at the last report. Should my view of a £50bn QE extension be seen, sterling should remain under pressure on a braod basis. The UK remains the only G7 nation still in recession.

The ECB is likely to be the least interesting of the remaining meetings. I expect an unchanged policy decision. Of note would be any alterations to the wording regarding growth and lending. The former may be highlighted a little more favourably than the tentative comments from October but lending data remains unimpressive. Staff forecasts are not available until December, so the ECB meeting has, of the three, the lowest risk of casuing a significant market reaction.

Once again it is sounding like a broken record or the game ‘I can name that tune in ONE note’ as Russian banks are committing to funding costs so high they risk becoming unsustainable, a trend that constitutes a greater threat to the country’s financial industry than stalled credit flows, the central bank warned on Monday
Banks are offering returns higher than 15% to attract funding both in the form of wholesale financing and deposits as they try to offset inflation of 10.7% in September, albeit it was the lowest level in 2 years, and offer a premium above the central bank’s key refinancing rate of 9.5%, Bank Rossii First Deputy Chairman Gennady Melikyan said at a conference in Moscow today. “It would be very difficult to get the same returns after you raised money at rates of 18 to 20%,” Melikyan said. “This will be a problem for banks.”
As the market has witnessed for the past 6 months, lenders are struggling to remain profitable as they reduce loans to corporations and households on growing, and justifiable, concerns they will be unable to service their debt, cutting banks’ main income source to cover interest costs. The central bank has lowered its key rates eight times since April as policy makers try to avert an entrenched financial crisis that threatens to undermine the world’s biggest energy exporter’s fledgling recovery. Banks seeking to attract funding at these high rates are “potentially bankrupt,” Melikyan said. Some of the country’s top 30 banks offer returns ‘in excess’ of 17%, he added. Excluding short-term deposits, the average rate on deposits was 12.6% in September, central bank data show.
The central bank last week said it is reducing interest rates in part to stem RUB gains and prevent the accumulation of risk on the stock and currency markets as investor appetite for high yields starts to return. The RUB remains very attractive as a carry trade, but earning enough to cover the high financing costs is proving difficult for the banks, as the country’s biggest lenders post losses, or big declines in earnings. State-controlled OAO Sberbank’s 9-month net income plunged 91% from a year earlier to RUB 9.1 billion, the bank said on October 22nd. VTB Bank, also majority-owned by the government, posted a net loss of RUB 12.4 billion in Q2, compared with a profit a year earlier, the bank said on October 21st.
Lenders’ corporate loan books fell 0.7% from August after staying unchanged the previous month, the central bank said in a report on its Web site today. Consumer lending dropped 1.1% for an eighth consecutive monthly decline, and the financial industry’s total assets fell 0.5%, while total equity capital rose 6.5%. Last week Bank Rossii once again lowered its key interest rates to record lows, reducing the refinancing rate 50 bps to 9.5%, and said the move was aimed at “additionally stimulating lending activity of the banking sector.”
The ratio of non-performing consumer loans climbed to 6.4% from 6.2%, according to data posted on the central bank’s Web site. Household and business delinquent lending as a share of the total was unchanged in the month at 5.8%. Banks set aside RUB 1.82 trillion to cover overdue debt, an increase of 3.2%, compared with a month earlier. Overdue corporate loans fell to 5.6% of total lending in September from 5.7% a month earlier. The central bank estimates that bank provisions exceed bad debt by 70%, according to Melikyan. Provisions aren’t big enough to cover total bad debt, he added. Russian banks only book missed payments as non-performing loans, compared with international accounting standards, where the total loan is written off once debtors fail to make payments after 90 days.