EUR Shorts Crucified, And The Fun Is Not Done Yet As Specs Expect Food Price Surge To Persist, Further Curve Steepening

Last Friday, following the disclosure that net commercial EUR short positions has surged to -45,182, nearly a double from the -24,201 the week before, we expected a massive short covering squeeze, which would bring the EURUSD far higher. Today, the CFTC released its weekly update of non-commercial futures exposure. As expected, the covering rally was fierce and intense, and is likely still ongoing: net non-speculative long positions surged by 49,291, in line with the highest one week move in recent years, the biggest of which was recorded in June 2010 when net shorts collapsed by 49,585. The net result pushed net spec positions from -45,182 to 4,109, and resulted in a move in the EURUSD from 1.33 last Friday to 1.3621 at last check. We believe the short covering rally is now over. This is further corroborated by the drop in USD longs in the past week from 10,057 to 5,210. Other currencies were not surprisingly quiet in the past week, with little notable action in either CHF, GBP or JPY net spec exposure.

Elsewhere, in the crop space, futures continued the grind higher in all categories, as speculators continue to expect the food price surge to not moderate any time soon.

And lastly, the third category we keep track of, bonds, saw a dramatic surge in expectations for a plunge in short-term yields, as net non-specs jumped from -30k to +10.9k, and 5 Year net exposure jumped to a two year high at 175k contracts. The most hated part on the curve is still the 10 Year, which had a -86.6K contracts. We expect the big boys to take this info and cause a squeeze in the 10 Year, while forcing an unwind to the left side of the belly, resulting in a material flattening of the 2s10s.