Market Rumours

GBP/USD is testing key support at 1.6295. RBS says if this level holds then there's a good chance of a retracement to 1.65, where it's a sell. However, if 1.6295 is breached on a sustained basis then it will keep the downside going toward 1.6080 and then 1.5720. GBP/USD now at 1.6310.

Ratings agency Fitch downgraded Greece on Tuesday to BBB+, outlook negative, after putting the country on ratings watch Monday. EUR/USD ticked down slightly after the announcement, and was at 1.4786 from 1.4818 late Mon,

Investor confidence in Dubai took a fresh knock on Tuesday as its leaders dithered over a rescue for debt-laden company Dubai World DBWLD.UL and ratings agency Moody's slapped a downgrade on government-related debt. "You can usually take the view that no news is good news, but in Dubai's case it's quite the opposite -- investors need to hear some developments on Dubai World's restructuring," said Julian Bruce, EFG-Hermes director of institutional equity sales. Leading lenders were waiting to hear from the flagship firm as they negotiate payment on a $3.5 billion (2.1 billion pound) sukuk, the world's largest, issued by Dubai World subsidiary Nakheel and viewed as a litmus test for the creditworthiness of many Dubai-linked corporations."The period of six months would be too short for a full restructuring. The six month period would focus on the creditors, the contractors and so on," Abdulrahman al-Saleh, head of the Dubai finance department, told Al Arabiya TV.

EUR/GBP charts suggests a bias toward 0.94 into year-end says RBS. Now at the day's high of 0.9090 the cross has already met the bank's first target of 0.9080, the next is 0.9190 then 0.94. On the downside RBS says decent support comes in at 0.8995.

USD/JPY is still unable to close above its 60 DMA near 90.00 and therefore the bias remains for a stronger JPY despite BOJ action says RBS. Now at 89.00 the bank sees risk toward the old trendline at 87.80 and below here the recent lows of 86.80 and 84.90.

JPY strengthens from late NY level on Japan exporter buying, retreat in USD-positive speculation over nearer-term U.S. rate hikes after Bernanke says to keep rates low for an "extended period; but JPY rebound could be stymied if overseas investors frown on Japan PM Hatoyama's decision to give in to minor coalition partner demands for increased spending on new stimulus package unveiled earlier in day, says Yuzo Sakai, manager at Tokyo Forex & Ueda Harlow. In apparent move to satisfy demands from People's New Party for more expenditure, Hatoyama's DPJ increased spending in package to Y7.2 trillion from Y7.1 trillion previously proposed. "This could raise some questions overseas about Japanese political leadership," as increase comes despite falling tax revenues, ballooning public debt, says Sakai. "For that reason, any effect on the yen would likely be on the downside." USD/JPY at 89.03 vs 89.52 late NY.

"We're likely to see some pick up in currency volatility as trading volumes thin as we approach Christmas," says NAB FX Strategist John Kyriakopoulos. What's more, currency drivers becoming little more complicated after some signals USD decoupling from stocks, which could keep volumes light. "There also appears to be more uncertainty about which horse to back as the main driver of currencies right now which could well encourage traders to step back until the picture becomes clearer. Stock markets have been going sideways now for three weeks so we'll need to see a trend being established, up or down, to provide a catalyst for either adding to or paring risk-trades such as long AUD/USD."

USD/JPY falling as Japanese firms, such as exporters, selling pair "as they have judged the dollar at Y89 is a good level to sell as they checked the dollar's topside is heavy above Y90.00 yesterday," says senior sales dealer at major bank in Tokyo. Adds, some short-term investors selling due to risk aversion as Nikkei now in negative territory. Pair may fall to 88.50 vs last 89.08. EUR/JPY may fall to 131.50 vs last 132.26.

Investors selling USD/JPY as "they just feel like it, without any concrete reasons," says senior dealer at major U.S. bank in Tokyo; tips 88.70-89.70 band vs 89.23 now. "Japanese insurance firms already have enough hedge contracts against a strong yen, so they don't need to buy even when it rises sharply. Japanese exporters' yen-buying isn't that large because their profits overseas are decreasing. So there are no particular reasons why the yen should be bought now. I think investors are buying the yen just because of" general sentiment. Adds JPY may not gain for long amid concerns Japan's government lacks strong leadership, given wrangling over size of next extra budget, and as economic conditions not strong.