| CATEGORY: FX |
FX Morning update - Dubai debt worries send sterling lower as the dollar recovers |
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By Michael Hewson
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Fri 27 Nov 2009
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LONDON (SHARECAST) - The news yesterday that Dubai was seeking to re-schedule its debt saw equities slide, the pound get hammered, and the dollar recover from its lowest levels since August 2008 against a basket of currencies.
The yen also strengthened hitting its highest levels against the dollar since 1995.
The concern is now that the Bank of Japan will intervene to prop up the dollar as it heads towards its all-time lows against the Japanese currency. The Bank of Japan do have previous for this, as treasuries rose in anticipation of possible intervention of some kind as Financial Services Minister Shizuka Kamei urged an international response to halt the currency’s gain.
The Asian session picked up where Europe left off yesterday as the equity decline continued and the US dollar rose.
Sterling was particularly hit over fears that Dubai investors would be forced into a fire sale of its UK property assets, while the dollar overall regained ground as investors pared back on risk.
EURUSD - yesterdays rise to 1.5145 was quickly reversed and was taken over by the Dubai risk aversion story, as well as the absence of US markets for the Thanksgiving holiday. This story has seen a dollar recovery, and the Euro slip back below 1.5000 in late afternoon London trading. Unless the Euro can recover back above 1.5060, then we could see a deeper correction towards 1.4800/10 area which has so far supported this up move.
GBPUSD - sterling slumped to its lowest levels in over a month against a basket of currencies and against the dollar it has been particularly badly hit. The pound could be set to re-test the neckline support lows at 1.6320. A recovery back above 1.6520 today, would be needed to delay this scenario. A break of the 1.6320 level would then bring the possibility of a test towards 1.6000 into play.
EURGBP - while above 0.9070 the scope for further Euro gains and sterling losses remains. Highs so far of 0.9128, and the longer term target remains at the 0.9270 area. The Euro should also find some support around the 0.9030 in the event it does slip below 0.9070.
USDJPY - the dollar continues to lose ground against the yen after breaking its January lows of 87.10 yesterday. Lows so far of 84.90/95 will probably not be the extent of it. The market will want to test the Bank of Japan's resolve at these levels, and look to test the 1995 lows just below 80.00. This fear of intervention could well make for some very choppy trading. It would need a move back above 89.20 to ease the downward pressure and the market may also find resistance at 87.10, the previous lows.
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