The big story by the end of the month was the announcement by Dubai World, the investment arm of Dubai, that it is having trouble making payments on nearly $60 Billion. The funds were borrowed for various large-scale projects, ranging from man-made islands to massive hotels and skyscrapers, many of which are hemorrhaging money in the wake of the real estate crisis.
The news rattled forex markets with risk aversion is the name of the game which predictably sending “safe-haven” currencies like the Dollar and Yen up, while sending everything else down. The reasoning is that the Dubai debt bomb could easily spread to other emerging market economies, triggering a wave of sovereign defaults and even a second credit crisis. Credit default swaps (which function as insurance against default) on emerging market bonds soared on the news, by 60% for Dubai bonds and 16% for Greece, for example. The situation has been likened to the defaults of Russia in 1998 of Argentina in 2002, both of which massively destabilized global capital markets at the time. Despite the recent gains, financial markets remain shaky and a sovereign default would likely reverberate around the financial world.
The JPY crosses have been a bit oversold in the panic one hour before Tokyo session open but bounced up after the opening on November 27th (Friday). On the previous day-26th Nov, EURJPY fall to 129.50 after breaching the descending wedge formation with support at around 131.70 which has been maintained since Nov 19. On the 30th(Monday) volume was thin and prices moved sideways between 130.60 to 129.00.
