Short Sterling – December 2010

Nicole Elliott from Mizuho Corporate Bank at 02/10/10

Comment: This contract has seen a strong spurt so far this year, as have red months, while front ones are pretty much capped around 99.300 so that calendar spreads continue to narrow (and have further to go, March10/March11 target 70). This December 2010 contract is still somewhat overbought while soaring open interest over the last six weeks suggest bankers are already positioning for year-end and assuming Libor will stay put. The 9-day moving average has done an excellent job recently but we feel a period of consolidation under contract high is needed for another week or three Dips will hopefully be contained by the 26-day moving average at 98.395. Then onwards and upwards again towards 99.000.

Strategy: Buy at 98.620 but only if prepared to add to 98.4100; stop below 98.220. First target 98.720 then 99.000.