CFTC Weekly Options Update: Specs Momentum Trade Unwinding As Flatter Curve Is Sought After Shape

Looking at the CFTC Commitment of Traders data for the past week confirms that the momentum unwind continues. In Treasury's net spec positions in both the 2 and 5 Year tumbled (from -11,125 to -35,142,  and from 152,782 to 102,885 respectively) even as bets that prices on the 10 Year would jump almost doubled (from 58,661 to 97,346). After chasing curve steepening, specs are now going all in on a major 2-10 flattening. The same thing is evident in commodities, where spec bets on five key categories all declined week over week. Lastly, the unwind in dollar shorts, and everything else longs is accelerating: dollar net spec increase from 6,315 to 10,827 as all other FX (except the GBP) saw spec bullish interest decline.

UST Curve specs:

Commodities specs:

FX specs:

And some additional charts from Libanman futures: link.

Comments

[greenewave]

To find out more about the Imminent Collapse of the U.S. Dollar, watch the video "U.S. CREDIT, DOLLAR COLLAPSE – CAPITALISM DESTROYED" at (http://www.youtube.com/watch?v=BWKDmMERKZg).

by Anonymous

The United States is the Titanic and has been driven straight into an iceberg at the expense of the American people!! It’s time to buy Food, Guns, and Ammo as Survival Techniques will be the new vogue!

[Orly]

"...even as bets that prices on the 10 Year would jump almost doubled..."

Can anyone shed light as to whether this is the reason the USDJPY has been acting funny over the past two weeks?  Some hours, the USD is seen as a safe-haven currency, while the next hour, it rises with the SPX and risk appetite in general.  And now the Ozzie dollar sometimes acts as a "risk-off" safe-haven currency!  Bah!  Just crazy.  :(~

The USDJPY pair has reached the top of a long channel that has been in place for several months, as well as the coincident 61.8% Fibo retracement as seen from the highs as 17 September and the low of Hallowe'en.  My main concern is that many traders are going to get burned going long here, when a pull-back to 81.7 (at least, for consolidation purposes...) is in order.  I remain highly suspicious of this recent move because the pair is not acting the way it "should."  Also, the USDCHF is not at all in-sync with the action in the USDJPY pair, either.

How does this action in the bond market play toward either scenario of the USDJPY breaking out or pulling back from these levels?  Any insight would be greatly appreciated.

Signed,

Perplexas in Texas

/:

[buzzsaw99]

It sounds like you know more about it than I do but I suspect BOJ intervention then when it isn't enough traders pile back in. The BOJ is having a tougher time working up the fear factor. Also I suspect China is buying yen much to their (BOJ) chagrin.

[Orly]

Thanks for the response, buzzsaw.  I had forgotten about the Chinese buying yen.  How long they can afford to do that while they are raising their own interest rates and engaging in food-price controls is a good question.

Also, the key to the price action in the USDJPY pair may be a simple as watching the real yield on the US 10-year bond.  Overlaying the chart in my head shows me that the 10-year yield peaked at 0.87% on November 16 from 0.49% on the first.  Since then, yields have come back a bit to 0.77%.  http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/real_yield.shtml  The charts overlay fairly well over the last month except when we get to the top, when US 10-year yields receded and the DollarYen went sideways.

If 10-year yields start to come off strongly, this would suggest a pull-back in the USDJPY pair.  If they go higher (much to the chagrin of Uncle Ben...), then a break-out is on the way.  Is this the Magic Key, or have I been watching too much Harry Potter?

____________

Usually, good forex analysts may dsagree but there is keen debate amongst well-established 4X analysts giving polar opposite recommendations.  Here are a couple of quotes from the guys at DailyFX.com:

"The USDJPY continues to crawl higher and upside levels are 8400, 8470, and 8600. The break above both the 20 and 55 day averages and the longer term resistance line strongly suggests that the longer term trend has reversed."- Jamie Saettele, DailyFX

"The market has been in recovery mode over the past several days since confirming a double bottom on the break above neckline resistance at 82.00. However, the risks for additional upside should now be limited to the 100-Day SMA by 84.35, and any rallies into this longer-term SMA should be sold in anticipation of a resumption of the broader underlying downtrend."- Joel Kruger, DailyFX

____________

Personally, I think the truth lies somewhere in the middle.  According to my charts, the price of the USDJPY has reached the usually heavy-handed 63.8% Fibonacci retracement level, as drawn from high of 09/17 and the low of Hallowe'en at the 83.8 level.  Also, Mr. Kruger's 100-day moving average and the top of Mr. Saettle's trend-channel (why he says the pair has broken this level, I am not sure.  My charts show the pair to be right at the top of the channel range...), plus the Fibo all coincide at 83.8.  A decisive break above these levels has nearly unlimited upside potential, while a break below would allow consolidation and re-compression of the pair.

Also, the Awesome Oscillator has topped or is about to top it looks like, while the center of gravity shows money sentiment moving out of the currency pair.  This would bode well for the expectation of a downside retracement.

I am expecting a break below this Fibo level of 63.8% to retrace at least to the 38.2% Fibolevel @ 82.5.  But, then again, I was expecting this all last week while the UST 10-year threw a monkey in my wrench.

Maybe I will just toss a coin?  Ha!

Thanks so much for listening and thanks again- no, a million times- to ZeroHedge for an invaluable forum in which to express my ideas.  I can't really do it at the quilt club.  :D

Orly

[trav7777]

so specs are getting longer the dollar and shorter everything else? 

[hugolp]

Yep. But be carefull about the money printers.

Now that the government spending (they call them stimulus) are gone tha market is trying to correct again. But I think that Bernanke wont allow it. Now QE2 is a daily issue so the Fed is going to micro-manage the process.

[Spitzer]

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