Market Rumours

The USD is mostly lower after Abu Dhabi bails Dubai out with $10B financing, and risk appetite recovers. Sentiment is helped by a report Citigroup is about to repay its government bailout. A Tankan survey from Japan is stronger than expected, but capex is disappointing. The USD is down at Y88.64, while the EUR rises to $1.4660 as the market waits for Greece to reveal how it is going to reduce its budget deficit over the next few years. The GBP is a little lower after Rightmove says house prices fell 2.2% this month.

USD/JPY off from 88.91 high (peak of climb driven by Dubai news) on profit-taking by short-term speculators, selling by Japan exporters, says senior trader at big Japan bank. "The dollar has tried to rise (out of recent ranges) over the past several days, (but failed) so there are people seeking to take profit," he says. Tips 88.30-89.00 range through rest of Asian hours, Europe trading; pair last 88.77. While news that Dubai has received $10 billion bailout from Abu Dhabi initially lifted USD/JPY, momentum didn't last as "we just simply don't know enough about what will happen from here" on Dubai debt problems.

The euro rose against the dollar in late Asian trading Monday as worries about Dubai's debt crisis waned on news that it will get $10 billion in financing from Abu Dhabi to pay off some of the debts of the troubled state-owned conglomerate Dubai World. The news eased concerns that Dubai may rock global financial markets by defaulting on its debt, dealers said. Traders reacted immediately, snapping up riskier, high-yielding currencies such as the euro on the bet that investors demand for those currencies will grow. "The impact of the news is positive for the euro," said Satoshi Okagawa, chief foreign-exchange forward trader at Sumitomo Mitsui Banking Corp. But the European currency may stay below $1.4800 in the days ahead as Greece's debt problems remain unsolved, keeping investors wary of buying euros too aggressively, Okagawa added.

JPY continues to gain on safe-haven buying as players speculate Dubai World subsidiary Nakheel may send ripples through financial markets later if outcome negative on its talks over its $3.52 billion bond due today, says Yuji Saito, head of FX group at Societe Generale. Eyed as indication of whether Dubai World debt fallout to worsen ahead; "nothing's been decided so far, and the uncertainty is encouraging risk aversion, which is pushing the dollar-yen down." USD/JPY marks fresh intraday low at 88.53, says if breaks first support at 88.50, fall to 88.00 on the cards. EUR/JPY also hits fresh intraday low at 129.59, says first support at 129.00, with any breaches opening way to 127.00. Adds also helping JPY is speculative buying ahead of pricing on Mitsubishi UFJ Financial Group's new share offering, which could come as early as today; "this is a factor in some of the trimming of yen shorts, expanding of yen longs."

JPY gets boost as some players buy safe-haven unit after BOJ December tankan shows capex remains weak, adding to doubts about economic recovery ahead, encouraging flight-to-safety flow into JPY, says Yuzo Sakai, manager of fx business promotion at Tokyo Forex & Ueda Harlow. USD/JPY falls to fresh intraday low at 88.84 from earlier high 89.32 marked before tankan; EUR/JPY also down to 130.00 from earlier high 130.63. Says any further falls in share markets, with Nikkei last down 0.1%, will keep positive negative pressure on USD, EUR vs JPY. But adds "after the bounce back in dollar-yen Friday, this is still not a market where people will be selling the dollar aggressively, so the effect from the tankan should be limited." Tips support at 88.70 vs last 88.91 for USD/JPY, support at 129.70 vs last 130.02 for EUR/JPY.

Tankan shows firms still aggressively cutting labor, investment, likely due to their view Japan economic growth to slow as domestic supply remains greater than domestic demand, which means prices very likely will keep falling, says Daiwa Institute of Research senior economist Hiroshi Watanabe; "though it's not big yet, the risk of the economy falling into a deflationary spiral remains. Consumers are strengthening their expectations that prices will keep falling for the next few years. That would lead to lower (corporate) profits and lower payments." To avoid economy from entering this scenario, BOJ "would be forced to take extra accomodative policies, such as further increasing the amount of liquidity injections for an extended period.