Market Rumours

From standing at 16 year highs in mid October the latest IMM speculative positioning data shows that sterling short positions have dropped below the one year average of 42k contracts and now stand at just 36k. This, says MIG Investments Paul Day, suggests that the pound will now trade on fundamentals rather than be subject to the kind of short-squeeze witnessed recently. As for levels Day pegs major resistance for GBP/USD 1.6776 and 1.6882, major support at 1.6458.

Short-term oversold signals triggered by Friday's sharp move down in GBP/USD, and the possibility of a bidding war for UK chocolate maker Cadbury's is giving the spot a lift Monday. GBP/USD prints the day's high of 1.6626 from Asia's low of 1.6481 while EUR/GBP slips to 0.9006 from 0.9038. Looking at the charts Commerzbank's Axel Rudolph pegs resistance at 1.6696 and 1.6758 and favors selling the latter if seen for a return to 1.6580 and eventually the low 1.62 area. GBP/USD now at 1.6625.

EUR/JPY sold off late Friday but then reversed that decline as gold and stocks rallied Monday notes BNP Paribas. While the USD/JPY side of the equation remains vulnerable to a rapid liquidation of positions on a move below 88.00 the EUR/USD side is likewise at risk above the 1.5060 high which will see stops triggered. As such the bank says the immediate direction of the cross is likely to depend on whether either, or both sets of stops are triggered. EUR/JPY now at 133.04.

Thin liquidity is likely to be an issue this week due to Japanese and US holidays, but it looks like investors have already prepared themselves for this in terms of currencies, says Barclays Capital. Investors "were cutting long risk positions late last week," bank says. Pattern is typical of month-end risk-cutting, as seen in the past four months, bank says.

Things are looking up for EUR/GBP says Commerzbank. Wednesday's revised 3Q UK GDP should show only a minor upward revision and will do little to dampen the markets negative sterling sentiment. Meanwhile the widening swap spread in favor of the euro will support the cross further as will an improving technical picture. EUR/GBP now at 0.9024.

After the Fed's Bullard noted his preference for extended MBS purchases, the 1.50 mark for EUR/USD "should be well within reach this morning," says Commerzbank. European PMIs could also help to nudge the pair higher, bank says. Now trades at 1.4971. Elsewhere, bank says this should be a "very quiet week" for sterling.

Fed Bullard's remarks in favor of extending Fed's asset purchase programs should provide support for risk trades and hit USD, says Barclays. Expects U.S. rates will be a potential source of volatility this week, with several Fed speakers taking the podium, release of FOMC minutes, also second estimate of U.S. GDP, nearly $120 billion worth of U.S. Treasury bond auctions - just as worries grow that U.S. market rates could drift higher when Fed programs come to an end. In this context, says Bullard's comment "suggests that the Fed will continue to underwrite the rally in risk and would leave the USD drowning in liquidity"; adds Fed minutes should also be supportive of further USD weakness. EUR/USD last 1.4927 vs 1.4851 late Friday in NY, just below intraday high 1.4930.

USD/JPY looking rangebound for now, may need more bad news on global, Japan economies to breach key support around 88.50, says Mitul Kotecha, FX strategist with Calyon; adds "the market is becoming a little crowded...it would take an increase in risk aversion, bad news on Japan, weaker stocks" to provide further downside. Notes long JPY positions up "dramatically" last week, as JPY appears to be strengthening negative correlation with risk appetite and risk-on currencies like AUD, NZD. USD/JPY last 88.94 vs 89.00 late Friday in NY.

Spot gold jumped 1.2% in Asian trading Monday on the back of fund buying that triggered buy stops, propelling the metal yet higher in a move that weighed on the dollar. Gold's stellar performance helped boost commodities across the board, with spot platinum peaking at a fresh 14-month high of $1,464.50 a troy ounce and London Metal Exchange copper rising 1.7% despite bearish news flow. "We closed on the day's high Friday, so that prompted more buying this morning. People are talking about buying gold long-term exposure, as a safe haven," said Anderson Cheung, director of precious metals at Mitsui Bussan in Hong Kong.