Market Rumours

CDS spreads on UK debt should be watched carefully, in light of the warning over the UK's credit rating earlier Tuesday, warns BNP Paribas. "(The) report is a timely reminder that an economy which has run into trouble with too much debt and too much consumption cannot be pulled out of the crisis by putting in more debt to create even more consumption," bank says. CDS spreads are widening, indicating growing nerves over UK debt. If the spread grows further, that is "likely to undermine sterling," bank says. Still, bank says it would sell GBP only vs EUR, not USD. EUR/GBP trades at 0.8986. GBP/USD at 1.6666.

EUR/USD remains below its October peak of 1.5064 and unless it can close above that in US trade Tuesday, risk reverts toward the November 5 high of 1.4920 says Commerzbank analyst Axel Rudolph. Below 1.5064, support comes in at 1.4824 and while that remains intact, the market should remain short-term bid says Rudolph. Topside, a break above 1.5064 will open risk toward the Fibonacci target of 1.5245. EUR/USD now at 1.4990.

GBP/USD could falter further with Reuters report citing Fitch as saying UK most at risk of losing AAA status among major economies, says Sydney-based RBC Capital Markets FX strategist Sue Trinh; acknowledges there's risk of a headfake - where currency takes off in one direction but then reverses in few hours to head in opposite direction - but adds something feels bit different this time vs when S&P placed UK on "negative outlook" back in May. "Having tested range lows in the U.S. dollar, this could be the excuse range traders were looking for" to push down GBP. Pair fell to low of 1.6601 vs 1.6755 pre-report; now back near 1.6650.

GBP falls sharply; Hiroshi Maeba, senior dealer at Nomura Securities says players reacting to Reuters report that Fitch's co-head of global sovereign ratings David Riley said U.K. most at risk of losing its AAA status among major economies. Large impact on GBP/USD as remark came out of blue, trading volume so far in day thin. GBP declines also pushing down other crosses such as EUR, he says. GBP/USD falls to 1.6608 (vs 1.6755 pre-remark); GBP/JPY falls to 149.38 (vs 150.72 pre-remark) with next support at 1.6500, 148.00 respectively, dealers say. EUR/USD last 1.4966, may fall to 1.4900, EUR/JPY last 134.46, may fall to 133.50, dealers say.

The online jobs market in the European Union improved in October for the first time since February as some optimism returned across the region, particularly in France and the U.K., a survey showed Tuesday. The monthly Monster employment index rose to 99 points in October from 97 in September, suggesting the soaring rates of unemployment being reported in the major European economies may be coming to an end.

1-month ATM USD/JPY down at 11.85%/12.55% vs 12.35%/13.05% in NY late Monday as calm spot market prompts players to unload protection. On growing view that currency markets likely to stay steady, one player sold 1-week ATM USD/JPY straddles at 11.00%, another player sold 1-month ATM USD/JPY straddles at 12.30%, options trader at major Tokyo bank says; adds face amount of those deals $100 million each. "Amid the absence of destabilizing factors in both options and currency markets, players prefer to unload hedges rather than buy on the cheap." Implied volatilities may decline toward 11.00% in near-term, he says.

EUR/JPY may rise briefly to 135.50, EUR/USD to 1.5030 if November German Zew indicator of economic sentiment comes in better than expected, boosting risk tolerance, says Mizuho Research Institute senior economist Koji Takeuchi. But adds EUR rises may limited; "to sustain the euro's gains, we need additional proof that the real economy continues to recover. Players now appear split on whether an improvement in business sentiment can shore up economic fundamentals." Focus also on EU 3Q flash estimate GDP due on Friday. Dow Jones poll tips ZEW business expectation index at +54.0 vs +56.0 in previous month, while ZEW current situation index expected better at minus 69.0 vs minus 72.2 previous month. EUR/USD last 1.4988, EUR/JPY last 134.87