Short Sterling – March 2010

Nicole Elliott from Mizuho Corporate Bank at 11/11/09

Comment: Hard to believe but despite another £25B of Quantative Easing Gilt yields have backed up by more than others so that two’s-ten’s spread hit a new record at 310 basis points – where the Short Sterling front March green March is trading. In fact every aspect of the UK yield curve looks too extraordinary for words: no money market funds for many yet benchmark 2-year yielding a record low 0.75%; Index-linked 2055 yielding just 0.31%; red-Dec futures priced at 2.25%; Consols at 5.00%. This March 2009 contract remains trapped between September’s record high and first Fibonacci support. Moving averages and a large Ichimoku ‘cloud’ continue to support our small upside bias while aware that this contract has the most to lose should year-end pressures emerge for a third consecutive year.

Strategy: Possibly attempt small longs at 99.210; stop below 99.080. Target 99.250 and then 99.450/99.520.