Look to Sell into Sterling Bounce

While we have been decidedly sterling negative, the move is taking place much quicker than we (or any one) appears to have anticipated. Both political and economic considerations are behind sterling's slide and M&A flows are not seen as currently helpful.

Sterling is terribly oversold here and a bounce should not be surprising. This bounce we anticipate should be viewed as an opportunity to improve the average on short positions and not to go long sterling.

We would initially target the $1.50 area for a corrective bounce and then $1.51. Euro support is seen in the GBP0.9000-20 area.

The pace of sterling's decline may be a bit disconcerting, but the direction is not likely to be opposed by the BOE or UK government. On the other hand, the sharp drop may further weigh on bonds, as investors seek compensation for the FX risk. In turn yield increase may boost the chances that QE is brought back sooner rather than later.
Look to Sell into Sterling Bounce Look to Sell into Sterling Bounce Reviewed by Marc Chandler on March 01, 2010 Rating: 5
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