British Pound Cracks $1.60 For The First Time Since November

Stockmarkets hold firm ahead of this afternoon’s housing data, but fortunes varied in the forex market. Sterling pushed ahead, breaking $160, but the Euro struggled to hold $1.39.

There was little this morning to shift equities from big-figure support; the Dow at 8500, Dax at 5000 and FTSE at 4400. But whereas Sterling continued to benefit from its ‘high risk’ status the Euro weakened, the EURGBP dropping below £0.87 at one point.

A tale of two banks
I’ve been running short bets on two UK banks for ages now, and there’s a danger that I’ve taken my eye off the ball. Lloyds (NYSE:LYG) is by far my biggest short position; I’ve followed it carefully, adding to my position at sensible times, and it’s serving me well. The price has slowly ground lower and I reckon it could have further to go as we approach the June 5th deadline for acceptance of the rights issue.

The reason for this is two-fold. Firstly, the rights were priced at a hefty discount, leading to a lot of buying just ahead of the ex-rights deadline. I expect some funds will sell the existing shares to fund the purchase of the new ones. This could pick up momentum if the price continues to slide.

Secondly, I’ve already seen articles aimed at private investors, advising them to ‘think long and hard’ before taking up their rights. These articles refer back to the HBOS rights which cost shareholders a packet. Again, if the price continues to fall they’ll not want to add to a losing position and fears will grow over the level of take-up. I haven’t got a price target, but I’m happy to remain short.

By contrast, my smaller Barclays (NYSE:BCS) position has been a sort of Lloyds proxy with a bit more kick. Quite often the bigger gains have come from a larger price fall on my smaller Barclays bet. Performance here is mixed; sure I’ve taken some profits, but I’ve also added to the short position at considerably lower levels. I was pretty confident; the swings were manageable and I still think there’s more bad news to come from the banking sector.

But I’m less sanguine after a better look at the chart. Resistance still looks good 10p higher at 300p, but there’s a rising trend of higher lows. The mid-month dip to 235p, which got me all excited, looks to be done and dusted. Now there’s a rising support combination of the 21-day moving average and an uptrend line.

What does this mean for me? Well, I’ve already set the alarm bells to ring at 300p, but I’ve also changed the emphasis to closing out part of my position on days when the share price is weaker. I’m happy running a small short which I can painlessly stop out just above 300p, but I don’t see the merits in running a big position against the chart.

My long GBPUSD bet from yesterday served me well, though the laid-back trailing stop loss backfired when the price retreated from $1.60 to stop me out at $1.5966 for +50 pips. Before that, I added to my long position early this morning at $1.5965, closing out at $1.5995 for a quick 30 pips.

I sold the Dax earlier today at 5002, but closed out a bit hastily at 4992. I’d been looking for a morning sell-off after the excesses of yesterday, but as lunchtime approached, with the Dow at 8500 and FTSE entrenched above 4400 I decided to go back to neutral ahead of this afternoon’s US existing Home Sales number.

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