Market Rumours

Risk sentiment has dominated the European trading session, with an overnight slump in Chinese shares boosting the dollar--a favored currency in times of stress. By 0530 ET, the dollar was down in Europe at Y88.65, while the euro was down at $1.4937 and the pound had fallen to $1.6508.

EUR/USD came off the boil in Asia amid euro cross-selling and slippage in Asian stocks notes BNP Paribas. The bank says behind the move were a couple of negative reports. S&P suggested the new Basle 2 rules due in April 2012 will result in sharply lower capital adequacy ratios for some banks and the German press is reporting that WestLB shareholders might allow the bank to fail. BNP says the latter supports its view that into year end repatriation flows to shore up balance sheets will support the euro. The bank remains positive on EUR/USD and looks for it to rally from 1.49 to test the recent highs of 1.5040

USD/JPY printed a fresh 6 week low of 88.55 Tuesday and Commerzbank analyst Karen Jones sees more downside risks. She looks for the September low of 88.23 and the October low of 88.00 to be retested with risk below here to the long-term support line of 87.63. Topside, Jones says only above 90.39 will negate this bearish view. USD/JPY now at 88.66.

EUR/JPY, EUR/USD down as selling by Japan exporters encourage Japan institutional players to follow suit, says senior dealer at non-Japan bank; notes "currencies' moves depend on buying and selling flows by real-demand players", with no major trading cues so far in Asian markets. Says stop-loss sell orders for EUR/JPY around 132.80; if breached, next target at 132.20, vs last at 132.87. Tips EUR/USD support at 1.4920 vs last 1.4955

Investors in U.S. markets will have their fingers crossed that forecasts for pleasant weather lure shoppers out for Black Friday post-Thanksgiving sales; but the usual deep discounts and crazy promotions may only salvage things to the point sales are either flat or down slightly this year, which is hardly a cause for much market cheer. And would we really want people in U.S. spending up a storm right now? Loading back up their credit cards? U.S. consumers are the cornerstone of their economy, but whatever happens on Friday, broad underlying difficulties will remain; U.S. economic recovery is lagging because jobs outlook there is poor, whereas unemployment is now falling in Asia ex-Japan (or at least seems to have stopped rising). OECD expects U.S. 2010 jobless rate of 9.9%, hardly a big recovery from 10.2% level hit last month - a 26-year high. Fed is well aware unemployment needs to come under control before it can start raising rates; for those tracking USD as rates play, is another reason to expect it to stay under pressure into 2010.

Central banks of emerging markets have substantial scope to expand their gold reserves given their underweight position in the metal relative to developed market central banks, Stephen Jen, managing director of macroeconomics and forex at BlueGold Capital Management, said in a report dated Monday. According to the report, the average gold holding ratio, or gold holdings as a percentage of total foreign exchange and gold reserves, of the U.S., Japan, ECB, UK, Germany, Italy, France and Switzerland is 37.9% on average. This compares with an average of 2.2% for a group that includes China, Russia, India, Taiwan, South Korea, Hong Kong, Brazil and Singapore. "The obvious implication is that the scope for emerging market central banks to buy more gold is substantial, if they decide to diversify into gold," said Jen. Jen also said the top eight emerging market forex reserve holders have $4.1 trillion in foreign reserves, meaning every 1% reallocation in reserves towards gold would correspond to $41 billion in gold purchases. "If these banks raise their gold holdings from the current 2.2% to a conservative 5%, this would correspond to $115 billion in gold purchases," he said. The Reserve Bank of India's purchase of 200 metric tons of gold from the IMF, first reported Nov. 3, which cost it around $7 billion, has been one of the factors widely cited as driving gold to new record highs. At 0230 GMT, spot gold was trading at $1,163.80/oz, down 30 cents from Monday's New York close. Spot gold hit a record of $1,173.75 Monday and has risen 33% since the start of 2009.