Friday, May 8, 2015

Red Eurodollars Futures Setting the Pace

Traders made strong statements in the last two sessions with additions of 345,000 positions in Red Eurodollars (EDM6, EDU6, EDZ6 and EDH7).  Those taking the long positions have been the winners of this battle thus far as Red Eurodollars are higher by 8.5 on average from yesterday’s close.

Looking more broadly at the composition of the advance across the 10 year Eurodollar strip, we see the yield curve is flatter throughout the first 9 quarterly contracts (just beyond the Red strip) on strong volume.  All else equal, we tend to view this development as constructive and generally instructive of additional gains, if not today – if held, quite likely over the coming sessions. 

Drilling down to the specific contract levels, we might look to EDH7 which occupies the last quarter position within the Red Pack.  This contract has today already recovered 50% of the 9 session decline from the April 27th high of 98.575 to yesterday’s low 98.255.  Additionally, having opened lower today, this contract has created a bullish engulfing pattern following the indecisive trade yesterday.  The new low yesterday was the 8th new low without a three session pause indicating some level of oversold conditions. Combined, the above suggests there is room for additional gains before balance will be restored.

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