The currency blog

…. this, combined with the lack of any significant data on Friday, left the technical traders very much in charge. Euro/Dollar obeyed the charts almost to the Nth degree with the closing support at 1.4610 holding even though we had seen slightly lower in late afternoon trading. Having broken the early November low of 1.4626 we are left with some fairly definite support and resistance levels to look at between now and the end of the year. There has been a considerable amount of trade around the 1.4700 level and this looks to be the initial Euro resistance level with last week’s high of 1.4780 the next resistance level. In a nutshell, if we don’t back up through 1.4800 in the next few days then the downside beckons. Recent moves suggest that short term trading will focus on being short of Euro with a target of 1.4450/1.4500 on the cards. This directional trade has been given impetus by what appears to be an improving relative economic performance from the US, which is in turn giving the Dollar a modicum of support.

This has been helped by comparatively weaker factors coming from the other major centres including problems in Greece, weaker European industrial production data in October, budget and election woes in the UK, and budget stress, weak economic data and more QE in Japan. It has become harder to argue that the USD should be the weakest of the major global currencies and hence the preferred funding currency for yield trades. Again, a lack of transactional flow is giving the strategists more success.

This morning we have seen news from the Middle East that had been largely anticipated…. That is, that the Government of Dubai has authorised the use of $4.1 billion to settle the maturing Sukuk that was causing the market some concerns. A Sukuk is an Islamic financial certificate, similar in function to a Western market bond, only one that complies with the strict criteria of Islamic religious law, Sharia. A source close to the Dubai Government added that other government-related entities will be considered for funding assistance on a case-by-case basis.

So where is Dubai going to get these funds from? Well, their beneficial neighbour, Abu Dhabi has pledged immediate financial support for both Dubai and Dubai World, with no conditions attached, to the tune of $ 10 billion …. that will help, pushing Dubai’s total assistance fund now up to $25 billion. We are thin on meaningful data today with just industrial production and 3rd quarter employment numbers from the EU and Canadian industrial capacity utilisation the highlights, although the release of the BoE’s quarterly bulletin might produce a couple of interesting pointers. Sterling has held up reasonably well despite the quality weekend press being full of articles concerning the UK debt mountain and the problems that might evolve over its funding.

Discuss on this on the Currency Exchange Forum