Spread Trading 27 Feb 09 - Sterling Trading Trend

Spread Trading 27 Feb 09

Today's update see » Financial Markets.

Spread Trading 27 Feb 09

Weakness throughout the late afternoon and evening sessions weighed heavily on the markets yesterday after a bright start and the FTSE 100 is now back in the mid 3800’s once again.

This being Friday traders will have to decide whether the market is short and want to cover before the weekend or long and not willing to risk further bad news in the weekend press.

With last nights sell off fresh in the minds of dealers the initial impetus may be to the later but in truth there seems to be solid support between 3750 and 3850.

Below that there is still the twin bottoms of October and November at around 3675 from which we staged two 1000 point rallies to the ‘roughly exact same’ point up at 4685. Yes we have had rallies and these were humdingers representing over 27% from tip to toe.

Clients are very wary but do not seem to want to miss out if a similar move develops from here.

The rally in RBS and Lloyds stock managed to survive through yesterday’s session even though the end of the day started to look a bit fragile. Equity holders might be tempted to think that the worst might be over. It is very difficult to foresee the eventual outcome of the banking saga but with the State now holding substantial portions of the equity the fear will be that the units will be used as instruments of state policy rather than authentic banking operations.

Increasing lending at the current point in the cycle seems to be going against the FSA’s own recent remit on prudent use of the Tier one capital weighting.

If on the one hand you can scream at banks for imprudent lending but on the other then force them to increase risk levels when they must know that unemployment and poor debt levels are increasing the authorities run the risk of making the same mistakes again in very short order.

I know that there is the epigrammatic theory that history generally repeats itself but this is usually used over significant periods of time not from one year to the next.

Sterling seems to have acquired a rubber ball status with the market rallying, falling, rallying, falling on an almost daily basis.

Yesterday was the turn of the bulls and today it is the bears. Yet again we are back down near to the $1.4150 heavy support region versus the dollar.

It looks like investors, who absolutely coined it in on the bounce yesterday, are buying into the support once more. Playing the ranges can be a very lucrative activity just so long as traders are aware that, on a break, positions should have tight stops in place.

Against the Euro, the pound seems to have settled into a £1.1000 to £1.1500 range since the end of January after the attempts to get to parity were defeated.

With the economic situation starting to affect even the most sound of States the arguments against the Pound, in particular, are starting to lose some of their power. With every nation state struggling to match budgets we all seem to be sitting in glass house tying to stop throwing stones. As more and more pressure is applied across the globe the historical safe haven status of the dollar might well reassert itself (even though the US has its own problems).

Gold slipped again yesterday briefly pushing at $930 before managing something of a rebound to the current $945. It is slightly worrying for gold bugs that the recent weakness in the indices has not resulted in further strengthening of Precious metals.

With the $1000 level once again asserting its powers of repulsion and the dollar looking up bulls should be wary of putting too much into a gamble on higher prices. Yes the momentum is still to the upside but the arguments are possibly once again (as they did midway through last year) running out of strength.

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Neither CleanFinancial.com nor Financial Spreads or any contributing author accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

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'Spread Trading 27 Feb 09' edited by SD, updated 27-Feb-09

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Risk Warning: Spread betting and CFD trading carry a high level of risk to your capital and you may lose more than your initial investment. Spread betting and CFD trading may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

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