A week ago we highlighted the major inversion in the non-commercial spec bets between the GBP and the JPY, after the two had been trending with very close correlation for almost a year. This week, after GBP spec bets had hit the highest in over a year, on expectations that the BOE would commence a tightening regime (which we believe are unfounded and largely premature considering the worsening stagflation the UK finds itself in), GBP bets dropped by a the second largest amount in over a year, or by 16,563 contracts (only the 18,788 decline in February of 2010 was greater), to 36,009. And as we suggested last week, when we told readers to "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" this is indeed what is starting to happen: the drop in Yen specs was roughly half the GBP decline, at 9,198 to a total of -27,746. In other words the GBP-JPY convergence is starting to play out. Nonetheless with Yen specs at the lowest they have been since May of 2010, this is a level of concern.
GBP-JPY net non-commercial specs and trendlines:
All FX. Note the continuing destruction of the USD. The EUR and the USD continued to trade with a -1.000 correlation.
Next: grains and softs. Slight reduction in spec bets except in Cocoa, which have surged since the Ivory Coast violence.
And last, the distribution of spec bets along the Treasury curve. Most bullishness is in the belly, while the outlook for the 10 Year continues getting worse, and is now at the lowest since August 2010.