Market Rumours

The BOE wrong-footed the markets Thursday, only extending QE by GBP25B instead of the GBP50B many had expected notes Commerzbank. The move supported sterling, however the bank doesn't expect this situation to last as it doubts this QE move will provide the pound with lasting support at a time when other central banks, such as the ECB and Riksbank have made it clear they will withdraw liquidity in the not too distant future. As a consequence Commerzbank looks for EUR/GBP to edge toward 0.94 in the week's ahead, it now trades at 0.8967.
GBP/USD may be facing resistance at 1.6630 as it squeezes higher. But, RBC Capital Markets, suggests there is a good chance for a break through. "With short GBP on the crosses still a very crowded trade, there is a risk GBP short covering persists," the bank says. The pair is now at 1.6618. It has been up as far as 1.6622.
The risk currencies are back on the rise as stocks recover from a negative start. The euro, sterling and the commodity trio of AUD, NZD and CAD all print the day's highs, as the FTSE, DAX and CAC all add around 0.2%.
If nonfarm payrolls data results in line with Barclays Capital's forecast of 150,000 drop (which is better than Dow Jones' forecast of 175,000 drop), USD/JPY may rise by 0.37% from pre-nonfarm payroll level, says Barclays Capital FX researcher David Forrester. Says past FX moves on nonfarm payroll results show "the dollar/yen is the cleanest way to play" data. USD/JPY last 90.72. He also says EUR/USD may fall by 0.24%; last at 1.4872.
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EUR/USD's next target 1.5500 vs last 1.4865, tips Morgan Stanley global currency research team, as "the lack of urgency by the Fed to head for the exit is likely to be seen in a negative light (for the dollar) given the continued improvement in the global economy." Adds latest FOMC statement suggests Fed to keep its rates on hold for at least next 6 months. "The impression conveyed is that the U.S. economy is more fragile and should lag the recovery. On that basis, we expect further weakness in the dollar." Adds bank increased USD shorts, EUR/USD long at 10% allocation this week. Team also expects GBP to be weak for similar reason; targeting EUR/GBP at 0.9500 vs last 0.8970.
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Weekend G-20 meet of central bank governors, finance ministers in Scotland probably last high-level gathering of global policymakers and lawmakers in 2009; UBS says: "While foreign exchange will not be on the official agenda, many nations will seek to bring it up, within the context of proceeding with the adjustment of global imbalances. The Eurozone will likely press hard on the topic, and Asia will once again be on the receiving end of complaints due to inflexibility in many of the region's currencies." Says coordination of exit strategies will again come up, though ultimately decisions will be based on domestic conditions. Says sudden concentration of bias-shifting by major central banks in mid-2010 could disrupt markets; "In light of this week's decisions, policymakers may choose to comment on minimizing market volatility next year as monetary normalization approaches.

Dollar/yen currency options fell to a two-week low in Asia on Friday and are likely to drop further as dealers expect the underlying exchange rate to remain in the recent trading range, decreasing demand for hedging. The benchmark one-month at-the-money implied volatilities fell to 12.95% in Tokyo, their lowest point since Oct. 23. The dollar stood at Y90.63 as of 0200 GMT. Investors believe the greenback will likely remain in the three-week-old Y89.00-Y92.00 range in the coming days, as there aren't any significant yen-buying factors available, options dealers said. In the Japanese market where Japanese exporters are dominant, volatilities tend to rise when the yen rises against the dollar. "The sentiment is, we can survive for a week without options contracts because it looks like the yen won't likely surge suddenly for now," said a trader at a Japanese exporter's treasury department. Currency market participants will pay attention to the U.S. non-farm payrolls data for October, due at 1330 GMT. A Dow Jones poll of economists forecasts the data will show a drop of 175,000 jobs, better than the 263,000 decline in September. And some players were turning more bullish as the data release approached as the overnight weekly jobless claims report beat the market consensus. Barclays Capital expects the payroll to show a 150,000 drop. The Royal Bank of Scotland says it will show a 135,000 decline. "If these bullish market views turn out to be correct, the dollar will surely rise, which will further decrease demand for options contracts," an options dealer at a major Japanese bank said.