Thursday, May 28, 2015

EDM6; Eurodollar Futures Firmer…for Now

Eurodollar Futures are modestly higher over the first 4 years with a slight flattening through the first 8 quarterly contracts.  Thereafter the curve is steeper in the next three years.  Reconciling trade over the last weeks, we would note that Friday’s price action was as bearish a session as had been seen in EDM6 since mid-March.  Since Friday the contract has floundered with recovering intra-session declining price action over the prior two sessions.  Today, the contract had started the session off steady and has moved marginally higher.

Although patient in allowing the bullish contingency to muster a willingness to take back Friday’s losses, today is the third session and thus far, the bulls have been unwilling or unable to recover any more than half of the open to close decline from Friday (99.03).  Unless that hurdle is vaulted on settlement, we would strongly suspect a resumption of the budding bearish trend.

Advancing price was truncated on the May 15 high (99.10).  That session was formed ‘spinning top’ and surrounding price action formed a bearish ‘three rivers’.  That mid-May top was below the mid-April top (‘spinning top’ again) of 99.13.  In short, we are seeing lost momentum in the bullish trend.

We recommend short position up the curve to include the front Red Eurodollars.  Economic data has been mixed and forecasted growth has been lowered at many shops.  There is great risk at this stage for slightly stronger than expected economic data to have a disproportionately large impact on the front end of the yield curve, pricing a more aggressive Fed monetary policy response to fleeting Q1 weakness.   

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