Market Rumours

BNP Paribas is holding with its pro-risk strategy, looking for the dollar weakening trend to continue to the benefit of the pro-cyclical and commodity currencies. However, the bank believes sterling will underperform as the BOE's growth forecasts are overly optimistic and inflation will likely spike higher than the BOE expects. BNP says GBP/USD's drop below both 1.67 and 1.66 has turned the picture bearish and it now sees risk toward 1.6240. For EUR/GBP a break above 0.9060 will confirm a base in place says the bank. EUR/GBP now at 0.9054, GBP/USD at 1.6539.

Japan's 38 chief economists at private research houses expect on average Japan's GDP to expand by annual 2.47% during July-September quarter, up from +2.30% expected previous survey, shows ESP Forecast Survey, monthly survey conducted by government-affiliated body. Japan's GDP rose back to positive territory by rising 2.30% in April-June quarter; analysts expect such momentum to last for several more quarters as Japan's corporate sectors recovering on stronger demand fueled by global economic recovery plus on government stimulus. Yet since 1st quarter GDP plunged annual 12.4%, GDP for FY09 ending March may shrink by 3.20%, survey shows, though would be followed by 1.21% growth in FY10.

Indicative pricing in options suggests that while EUR nearing highs for year, many participants seem unusually nervous, says Mark Chandler from Brown Brothers Harriman in note yesterday; notes options usually move in tandem with spot, so demand for calls greater in rising market, but this not case for EUR presently. Says benchmark 3-month (25 delta) risk reversal shows almost 1.2% premium for euro puts over euro calls; "this is among the largest skews of the year and levels not seen since last year's fourth quarter chaos." Notes EUR/USD's recovered from 1.4625 low at start of month (last 1.4980); "what seems to be happening is that with the euro poised to make new highs for the year, (recently) uncharted waters will be entered and implied volatility may actually remain firm. Here participants may be concerned about a tipping point for the dollar, where up until now the decline has been orderly.

1-month ATM USD/JPY vols down at 11.35%/12.05% from 11.75%/12.45% Wednesday in New York, as stable spot market prompts some interest in selling USD-downside hedges. One player sells 1-month, USD-put option contract with strike price of 89.30, vs spot last 89.84, implied volatility of 11.75%, option dealer at major Japanese bank says. But with current low option prices likely to attract bargain hunting, particularly as many players look for spot fluctuations to pick up after U.S. Thanksgiving holiday later in month, dealers say benchmark vols may rise by at least one percentage point in coming weeks