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Major Inversion In GBP-JPY Correlation, And All The FX Charts That Matter Next Week

Tyler Durden's picture




 

After trading in nearly perfect unison and with an R2 of about 0.8 for over half a year, in the last week the speculative pattern in the GBP-JPY correlation had a dramatic breakdown. Whether this is due to expectations that the BOE will have to hike rates to deal with 4% inflation, or continuing massive quant deleveraging behind the scenes of residual positions as traditional factors now blow up daily in the faces of quants, is unclear. What is clear is that suddenly one of the more long-lived spec FX correlations has whipsawed to the point where it has left many FX traders nursing critical wounds.

Note the surge in GBP bullish bets, and the plunge in JPY. Those willing to bet that the spec crowd is always one step behind the curve may be well advised to take the other side of the trade.

And for the FX fanatics who can't wait for trading to start tonight, here is the latest from Goldman's John Noyce:

 

 

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Sun, 02/20/2011 - 16:31 | 979960 Yen Cross
Yen Cross's picture

I love this trade. Have a core position starting @ 130.045.

Sun, 02/20/2011 - 16:34 | 979963 etrader
etrader's picture

Thanks for posting John's notes :-)

We see a lot of whats going on with GBP crosses directly correlating with the mid east situation.

Sun, 02/20/2011 - 17:59 | 980138 IQ 145
IQ 145's picture

 My interpretation of the recent post concerning the significant EuroDollar trade, is short the trade known as Cable, GBP/USD. remember, I'm frequently wrong about FX trades; but so is everybody else.

Sun, 02/20/2011 - 18:43 | 980251 Yen Cross
Yen Cross's picture

Hi IQ. GBP/JPY is a hybrid of usd/jpy and cable. If you look @ the usd/jpy leg of the trade it should help you out. Cheers.

Sun, 02/20/2011 - 22:53 | 980676 Orly
Orly's picture

We probably wouldn't be so wrong if They would stop throwing all this money around.  I haven't been this wrong in years.  At the same time, I can't imagine that it would last much longer.

The entire existence of the QE II is designed to prop up the GBP.  I thought they had given it up after the latest "good news" on inflation targets out of Great Britain.  I was wrong.  Again.

I have no clue what they're doing now.  It is just a waiting game because something is going to have to give some time.

I have a sinking feeling that things are even worse than we have imagined, hence the prolonged agony.

Sun, 02/20/2011 - 16:49 | 979989 disabledvet
disabledvet's picture

I love Marc Chandler at BBH but his post on SA that the "Pound get's Spanked" was more than just premature.  How can the Yen still be considered a funding currency for speculative commodity bets anymore?  Interest rates have been on the rise in the Anglo world for years now--and now the British War Dogs are on the march.  No less than the Queen herself has "summoned" POTUS for a little "chat."  Love to be a fly on that wall.  Talk about a history lesson.

Sun, 02/20/2011 - 18:01 | 980145 IQ 145
IQ 145's picture

 She's going to be horrified; with out a teleprompter, he can't even speak in coherent English sentences.

Sun, 02/20/2011 - 18:33 | 980226 spekulatn
spekulatn's picture

5 bucks he makes a curtsy.

8}

Sun, 02/20/2011 - 18:54 | 980276 gwar5
gwar5's picture

The Seven Samurais are badly needed.

Sun, 02/20/2011 - 19:50 | 980392 99er
Sun, 02/20/2011 - 20:59 | 980500 Yen Cross
Yen Cross's picture

Risk on target 114.5 area (eur/jpy) Don't waste your time on a/j. The carry trade distorts the trade as a whole.

Sun, 02/20/2011 - 20:06 | 980415 Ferg .
Ferg .'s picture

Good notes as always from Noyce . Agree with his EUR/USD analysis . Prudent to start looking at a large leg down in the medium term . At the moment we've got nothing but consolidation . As a euro bear I'm just relieved that the swap spread has compressed after that mighty spike a few weeks ago .

Sun, 02/20/2011 - 21:14 | 980526 Royal Fleming
Royal Fleming's picture

GBP/USD daily has a nice size inverted H&S. Went long at neckline. kind of an obvious trade. That was +350pips ago. Target area would be around 138.80 , not being greedy stop will be moved to right below 1.618 ext. at 137.50 with a 50pip downside stop.

Sun, 02/20/2011 - 21:21 | 980531 Royal Fleming
Royal Fleming's picture

Sorry..was talking about GBP/JPY...wtf

Sun, 02/20/2011 - 21:53 | 980592 Yen Cross
Yen Cross's picture

I know what you meant. Good Job I'm targeting the high 137's as well. Keep up the good work.

Sun, 02/20/2011 - 22:19 | 980638 camoes
camoes's picture

Who cares about fiat currencies prices, just go long goverment/cb's independent currencies short fiat

Mon, 02/21/2011 - 01:32 | 980874 Coldfire
Coldfire's picture

Nice tea leaves.

Mon, 02/21/2011 - 03:02 | 980985 London Banker
London Banker's picture

GBP always surges in times of instability in the developing world as London is a haven for  despots and oligarachs.  They can bring their fortunes here, live in luxury, send their kids to the best schools, and pay almost no taxes.  There are virtually no immigration controls.  Racial, social and religious tolerance are all favorable.  Watch for central London house prices in the better neighbourhoods to start rising . . .

Mon, 02/21/2011 - 06:02 | 981089 Mr Sceptical
Mr Sceptical's picture

Higher rates can support this trade, as JPY is most vulnerable to higher rates in cross currencies, but I will have my sceptical glasses on, and look for GBPJPY to top before 138,00 and head straight down to 125,00. Dont be fooled by higher inflation, Neither UK nor ECB are able to raise rates anytime soon. Fo God sake, stop chasing higher yields at the short end....

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