Abu Dhabi Provides Dubai With $10 Billion
On Monday the euro rose on news that Abu Dhabi would provide Dubai with a $10 billion dollar bailout easing investor concerns about a possible debt default by Dubai. Although the euro benefited from the bailout currency experts predict that the Euro’s gains will be capped by year end decreases in market liquidity in advance of years end. Kasper Kirkegaard of Danske Markets stated, “The Abu Dhabi news helped risk sentiment, boosting the euro. The yen suffered from a squeeze (in long yen positions). But we should be careful; the markets are thinning out so we could see some volatile moves.” In morning trading the euro rose 0.2% to $1.4656. Last week the euro fell to a two month low of $1.4586 after strong US retail sales data prompted a rise in risk sentiment. Against the Japanese yen the euro was at 129.64 yen.
Yen Falls, Euro Zone Recovery Fragile
The yen fell sharply as investors sought high yielding assets putting downward pressure on the yen. The low yielding yen is widely used in carry trades to fund the purchase of riskier assets and tends to rise when carry trades unwind. Euro Zone industrial production figures released today show a falling output of consumer goods pulling down October’s industrial production figures. Rising unemployment point to a prolonged and weak recovery. Martin van Vliet of ING said, “The marked relapse in industrial production in October is a sobering reminder of the fragility of the economic recovery in the euro zone. But it is premature to conclude that the industrial recovery is seriously losing momentum, let alone that it has run its course.”
Waiting for the Fed
Eurostat said euro zone employment shrank 0.5% quarter on quarter for a year on year decline of 2.1%. The euro zone shed 0.5 in the third quarter. Economists say that without labor market improvements wage growth and household demand will be limited. Markets are anticipating the results of the upcoming Fed meeting which takes place on Tuesday and Wednesday.
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