Market Rumours

***** For now the euro and sterling are winning the ugly race in the currency markets says Standard Bank's Steve Barrow, however while euro is currently leads, the pound is not far behind and could easily overtake as the UK election nears. Latest opinion polls suggest a close race and the key swing party, the Liberal Democrats are already ruling out any formal coalition. This would not be good news when the eyes of the world's financial markets are on deficit-reduction plans. Rating agencies could also issue a downgrade later in 2010 if post-election deficit reduction is compromised. Additionally, there's double-dip recession risk and VAT hike also biting. Friday's UK January retail sales are seen -0.6%. Barrow says they could be much worse and GBP/USD could slide to 1.50. GBP/USD now at 1.5686.

The euro remains a clear sell says Standard Bank's Steve Barrow, with EUR/USD likely to have a rapid fall to the 1.30 region over the next month or two. Barrow says euro zone officials are trying to argue the current mess is a Greek problem and if this can be corrected then the whole system will be safe. Barrow argues instead that the fault lines are in the construction of EMU itself and not in Greece's abdication of the rules, and so pressure on the system and the euro is likely to intensify, rather than diminish. EUR/USD trades at 1.3620.

EUR/JPY is trading above channel support in the 121.50 area but below the 9 DMA at 123.84 in a triangle formation, says Mizuho Corporate Bank's Nicole Elliott. The cross is marginally oversold and bearish momentum has eased considerably, so there is chance of a short-squeeze towards 125.00, and to position for this Elliott says she favors small longs from 122.45 with a stop below 121.50. EUR/JPY now at 122.71.

Greece has the "will and the strength" and the support of its people to carry out tough the economic measures needed to restore its battered economy, Stavros Lambrinidis, vice president of the European Parliament, said on Sunday. The Greek politician also criticised financial speculators for trying exploit his country's weakness, using it as a "pinata" or punch bag. Athens has struggled to convince investors it is tackling its debt crisis and markets are nervous about a default. EU leaders discussed the issue last week and offered words of support but failed to outline concrete steps, further unsettling markets."The government has indicated in the past weeks, even though these are not particularly popular measures, as you can imagine, that it has the will and the strength to do it, and the remarkable support in the Greek polls...indicates that Greece is going to manage to get rid of this mess," Lambrinidis told Sky News. "An interesting question that you said was discussed in Brussels in the past couple of days is indeed how is it that the European Union can deal with the humungous market speculation taking place in the past few weeks against the Greek economy.It's a children's pinata game, except in that pinata you don't have candy anymore you have billions of euros and there are financial speculators around the world who are just picking up their sticks and hitting it, and in this particular case it is Greece and tomorrow it may be some other country perceived as a weak link," he said. "There the European Union does not have mechanisms to actually support countries that are trying to put their finances in place, from these attacks."

Dubai's handling of the debt crisis at flagship Dubai World will affect its ability to attract future investment, British Business Secretary Peter Mandelson said on Sunday, amid a report the firm may offer creditors just 60 cents on the dollar.Dubai denied on Sunday a Dow Jones report that it is mulling a two-part deal, including one that may repay lenders 60 percent over seven years. "Dubai has to be conscious of the fact that how it resolves its current problems will mean a great deal for the Dubai brand, its reputation and how it secures investment from overseas in the future," Mandelson told a British business group meeting in the Gulf Arab emirate.Dubai World is in talks with banks on the debt delay -- about $22 billion linked to its main property units Nakheel and Limitless World -- but has yet to present a formal proposal. It staved off default on a $4.1 billion Islamic bond linked to Nakheel, after a last minute bailout from Abu Dhabi in December. Investors, already spooked by a lack of information on the company's plans to repay the debt, reacted with dismay to the reported proposal."Even though the news is not confirmed, a 40 percent haircut is potentially larger than what people were expecting, plus there's the extra sting in the tail of seven years," said Ali Khan, managing director and head of brokerage at Arqaam Capital.