FOREX TRADING

USD Recovers, Dubai Debt Not Guaranteed

• USD: Mixed, UAE central bank provides liquidity to Dubai, Chicago PMI beats expectations, stocks mixed
• JPY: Higher, Japanese government pledges to take action against JPY rise
• EUR: Mixed, EU CPI rises for the first time in seven months
• CHF: Mixed, tracking improving risk sentiment, EUR/CHF holds above 1.5100
• GBP: Lower, UK consumer confidence declines, mortgage applications rise
• CAD and AUD: AUD & CAD higher, supported by a slight uptick in risk appetite, Canada’s GDP rises

Overview

The USD traded mixed to lower Monday as investors assess the potential fallout from the Dubai debt crisis. A report that the UAE central bank is providing emergency liquidity to Dubai helped to stabilize global financial markets and sparked light selling of the USD as risk appetite improves. The UAE central bank is sending mixed messages about whether they will or will not stand behind the Dubai debt but, at this writing fear of significant fallout or contagion from the Dubai debt crisis has faded. The latest news on the Dubai debt crisis is a report that London banks are looking to put together a bailout plan. General consensus appears to be that the Dubai debt crisis is not another Lehman Brothers. EUR edged higher supported by report of the first rise in EU CPI in seven months. GBP continued to underperform as UK consumer confidence unexpectedly declined in November. Commodity currencies traded higher as risk appetite improves and global equity markets were relatively stable. AUD was supported by rising inflation and RBA rate hike speculation CAD supported by report of the first gain in Canada’s GDP in four quarters. JPY traded higher with gains limited by Japanese government pledge to take action against the JPY rise. US economic data was positive with Chicago PMI reported higher than expected. US equities traded higher after the release of Chicago PMI. USD recovered midsession as Dubai worries continue and the Dubai government says that Dubai World debt is not guaranteed.

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USD Lower, UAE Offers to Provide Liquidity to Dubai

FX Highlights

• The USD is trading lower as UAE Central Bank provides emergency liquidity to Dubai and global equity markets trade mixed, risk appetite improves as the UAE action helps to provide stability to the financial markets reducing fears of contagion from the Dubai debt crisis, GBP trades mixed initially pressured by report of a unexpected decline in UK consumer confidence with downside limited by report of an increase in mortgage approvals, EU consumer prices rise more than expected in November, JPY higher despite Japanese threats to take action against the JPY rise, commodity currencies trade higher as risk appetite improves and fears of significant fallout from the Dubai debt crisis fade
• Focus turns to today’s release of Chicago PMI and Canada’s IPPI/ RMPI and GDP
• Japan’s October industrial production rose 0.5%, November manufacturing PMI falls to 52.3 from 54.3 last month, October housing starts fall 27.1%, Japan’s PM says that Japan should act swiftly in regard to the Yen rise, Japan’s National Strategy Minister says the Japanese government has agreed to try to stop the JPY’s appreciation, JPY higher (more…)

UAE Central Bank Steps In To Help Dubai

U.S. Dollar Trading (USD) was extremely volatile as stock markets around the world went on a roller coaster ride with Asia stocks down over 3% and then European and US stock recovering late in the day. Large stops across the board sent EUR, AUD, Gold and Oil plummeting at the European opening but with Analysts calling the Dubai crisis not as bad as some feared and speculation that Abu Dhabi will step in and help its smaller state, the markets mood recovered from fear and panic. DJIA -154 points closing at 10309, S&P -19 points closing at 1091 and NASDAQ -37 points closing at 2138. Looking ahead, November Chicago PMI forecast at 53.7 vs. 54.2 previously.

The Euro (EUR) broke through 1.4900 at the height of the panic and fell quickly to lows of 1.4830 before recovering with Gold and Oil. EUR/JPY was extremely volatile as the pair tracked USD/JPY lower to 127 Yen before recovering to close at 129.50. Overall the EUR/USD traded with a low of 1.4830 and a high of 1.5025 before closing at 1.4990. Looking ahead, November EU Inflation forecast at 0.4% vs. -0.1% previously.

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United Kingdom’s Pound and Stocks Decline Due to Dubai’s World Delaying Debts

Dubai World, one of the key investment companies in Dubai, which is owned by the government, requested to postpone paying its debt to creditors until May of 2010; with liabilities worth $59 billion. The company was negatively affected by the credit crisis, which was believed to be the worst credit meltdown since the Great Depression.

The company has to pay back $3.5 billion next month, and the delay led to major credit rating agencies lowering government intervened companies. Borse Dubai Ltd. is the biggest shareholder of London Stock Exchange Group Plc. and due to the delay, we saw United Kingdom gilts climb as demand rose; while the pound and stocks plummeted heavily as investors turned to safer assets.

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