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Technical analysis: Short Sterling

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Short Sterling – March 2009

Wed, Oct 1 2008, 11:01 GMT
by Nicole Elliott

Mizuho Corporate Bank


Comment: Short Sterling futures contracts should hold below 95.500 for another month or more. Front contracts will remain under tremendous pressure ensuring calendar spreads trade around their most inverted ever. The interbank market is dysfunctional with three-month Libor at 6.32% today after overnight money dropped to 1.00% yesterday afternoon. Overnight US dollars yesterday were offered at 10.00% yesterday morning and 1.00% late in the day; it is impossible to run a serious business this way. The rush into short-dated Gilts is understandable although the sudden steepening of the yield curve has taken us by surprise. Last week’s rally in this futures contract extended beyond what we had allowed for, but it appears to be forming a ‘double top’ against 95.190. We still see it as a selling opportunity for another drop later in Q4, to 94.500, maybe 94.200 and probably no lower than 93.700.


Strategy: Sell at 95.000; stop above 95.250. Add to shorts on a daily close below 94.900 to cover half of shorts at 94.500 and the other half at 94.200. Then watch for signs of a dramatic low between here and 93.750.

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Mizuho Corporate Bank  | 1-3-3, Marunouchi, Chiyoda-ku, Tokyo 100-8210
http://www.mizuho-cb.co.uk | Nicole.Elliot@mhcb.co.uk

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