Shorts had the fear of God put into them this afternoon as talk of a US fund to soak up bad assets and a ban by UK regulations of short-selling of financial shares. More moderate steps in the US aimed at short-sellers may have helped as well. The SEC is said to be enforcing naked short rules as well as many institutional investors have decided not to lend their shares to short-sellers which may have added to the late rally. Nothing changes minds like price action, so shorts were forced to reckon with new information. Heavily-shorted stocks like Wachovia rallied as much as 60%.
The dollar was a clear beneficiary, dipping back toward 1.4250/70 where yesterday’s rally really accelerated. A break below those levels should see a dip toward support in the 1.4075 region.
