Thursday, August 13, 2015

Treasuries and Eurodollar Futures - like a 'shooting star'

Eurodollar futures volume on Wednesday was the second largest since mid-June as traders tried to discern the implications of the China yuan revaluation.  Price action swung from bullish to bearish within the session, ending the session with slight gains, but erasing as much as 10 bps or more from the session high in some distant contracts.  Open interest soared 152K, indicating that some confidence has been restored.  Treasuries too found good volume in yesterday’s trade and rising open interest in 5’s and 10’s (33K and 21K respectively).


The candlestick formation from yesterday’s price action in most of the Eurodollar and Treasury futures is called a ‘shooting star’ and like the meteoric action one sees in the night sky, it suggests Eurodollars and Bonds are to fall back toward Earth. 


That price action comes not only on the heels of shocking China news, but in front of today’s retail sales data, a data series that has been disappointingly soft.  Bloomberg survey expectation is for a gain of 0.5% for the ‘Control Group’ from a loss of -0.1% in June.  A strong report will likely find recent ED and TSY longs moving to the sideline.    


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