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Technical analysis: Short Sterling

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Short Sterling – March 2009

Thu, Nov 20 2008, 12:38 GMT
by Nicole Elliott

Mizuho Corporate Bank


Comment: The pressure over year-end has not dissipated and the spread of very long-dated Gilts over shorter maturities is close to a record; one can only assume their traditional buyers, pension funds, don’t have the money to do so. The Bank of England’s recent conversion to a Japanese-style zero interest rate policy is welcome, but probably too little too late. Politicians still do not understand why banks aren’t lending money or what deflation means to debt. This March 2009 contract is still very overbought and is holding below contract high at 97.700, which it should do again this week. Implied option volatility should remain high as prices veer between hopes for more rate cuts against the reality of expensive Libor.

Strategy: Stand aside if possible and use the Gilt market for any savings. For those who have to: possibly attempt tiny shorts at 97.380/97.500; stop above 97.750. Add to shorts below 97.200 for 97.000 to cover half and the other half ahead of 96.650.


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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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