• 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.

The size of the Dubai debt crisis is relatively small estimated at 80 to 90bln. As long as the crisis is contained the impact of the Dubai debt crisis should be limited. Focus turns to the RBA policy meeting Tuesday, ECB meeting Thursday and Friday's release of US November Unemployment. The RBA is expected to hike rates 25bps but it is unclear if the Dubai debt crisis will cause the RBA to rethink its rate hike. The ECB is expected to leave monetary policy unchanged and announce details of its exit strategy. US unemployment is expected to remain at elevated levels but the pace of nonfarm payroll losses likely continued to slow last month. Risk sentiment remains the main driver for Forex trade.
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Today’s US data: 

Chicago November PMI rose to 56.1 compared to 54.2 in October, a reading of 53 was expected..

Upcoming US data: 

On December 1st October construction spending, November ISM and October pending home sales index will be released along with November domestic auto sales. Construction spending is expected to fall by 0.4% compared  to a 0.8% rise last month. The ISM is expected at 55 and 55.7 last month and pending home sales are expected at 110.5 and 110.1 last month. ADP for November will be released on December 2nd expected at -185k compared to -203k last month. On December 3rd initial jobless claims for week ending 11/28 will be released expected at 480k compared to 466K last month along with Q3 final productivity and unit labor costs. Productivity is expected at 8.9% and unit labor costs expected -4.7%. November ISM nonmanufacturing index will be released on December 3rd as well expected 51 compared to 50.6 last month. November nonfarm payrolls and unemployment will be released on December 4th with the unemployment rate expected unchanged at 10.2% and nonfarm payrolls expected -145k compared to 190k last month. October factory orders will be released on December 4th expected at 0.2% compared to 0.9% last month..