Our longer term view hasn’t changed—we think the top is in for the euro and 2010 could be a very ugly year for the single currency—more on that in the next few pages. But near-term EURUSD is looking oversold (MACD at bottom of chart). We may see a decent bounce higher to work that off, and possibly trap more euro perma-bulls (we still might see just that).

But longer term, the risk to reward we think clearly favors playing the euro from the short side…a bounce here would give us a better entry opportunity. But, fundamentals always wreak havoc on technical players once they become the driver, especially if risk is the motivator. That said, we don’t want to try to get too cute here. And we definitely want to enter get short below key support…which can best be seen on the weekly chart on page 4.

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Euro risk realization seem to be accelerating among market players and analysts…

What is interesting is that fundamentals are beginning to mirror much of what we wrote in our Euro Report back in June, suggesting the single currency is facing real danger of coming apart in this cycle. Greece (instead of Italy) is the catalyst, but Greece weakness at part of and overall fiscal and strucutural problem with the PIGS (Portugal, Italy, Greece, Spain). In fact, we noticed a Bloomber radio interview with Jim O’Niel; head of economic research for Goldman Sachs that was quite telling. He believes risk is growing fast for the system, and points to the much larger economy of Spain as a major concern next year.

EURUSD Weekly: This growing risk is why we think among the majors, shorting the euro against the US dollar will prove the best single long-term trading oppportunity next year (from an emerging market perspective, we have already started paring the ones we like—Singapore dollar and Thai baht—against the euro instead of the dollar, as the euro is even more overvalued relative to the Asian block currencies).

Key support as you can see on a weekly basis is being tested. We have a 2010 target on the euro of a move back into the low 1.20 level. But if risk cascades and one of the key member states bolts the system, the euro could plunge even further faster.

Click on image to enlarge!

We will continue to keep you posted on this, and we suspect the major media will begin to focus more closely accordingly.

For more from Jack, please visit Black Swan Capital and register for their daily newsletter, Currency Currents.