Monday July 19, 2004 - 09:36:14 GMT
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INVESTICA Ltd - www.investica.co.uk
Aggressive Sterling positioning
There will be further short-term interest in high-yield currencies which will underpin Sterling. Speculative positioning is, however, now extreme leaving Sterling vulnerable to a sharp correction, especially on any signs housing prices have peaked. Long Sterling positions are, therefore, very dangerous at current levels even with a possible test of 1.88 against the dollar over the next 24 hours.
Sterling gained strongly against the US currency on Friday with a move to a high of 1.8750 after the weak US data and Sterling held the bulk of these gains in Europe on Monday. The strength of the advance was illustrated by gains to 0.6640 against the Euro.
There will be further near-term interest in high-yield currencies and this will continue to underpin Sterling unless there is a renewed shift in US rate expectations. Greenspan's comments will, therefore, be closely watched this week. Evidence of an aggressive US tightening would hit Sterling hard, but Greenspan is likely to be measured.
The latest IMM data recorded an increase in long Sterling positions of around 9,000 in the latest week, increasing the total long position to 30,000 contracts. This is the highest position since November 1999 and Sterling is, therefore, very vulnerable to a corrective retreat. This makes long Sterling positions very risky at current levels.
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