Wednesday, December 2, 2015

EDZ5 Lifted +30K Moments After 3mo Low Trade

EDZ5 was bought over 30K times between 99.525-.5275 moments after the 3 month low of 99.5225 was again traded. That 99.5225 has been the session low in 5 of the last 6 sessions, a level not before been seen since mid-September. In my most recent communication concerning the front end of the Eurodollar curve 
('December FOMC Hike Almost Priced...'), and immediately following a trade at that 99.5225 level, I advised that we should expect EDZ5 to find difficulty falling much further unless economic agents were willing to price a greater chance for back to back FOMC meeting hikes or for a greater 'take-up' of a policy rate hike than I expected. 

Economic data since that report has been consistent with the Fed raising policy rates on the December16th FOMC date, two days after EDZ5 expires, but has not suggested the Fed needs to hike at consecutive meetings. 

This morning’s higher than expected ADP Employment Change of 217K against the expectation of 190K is likely to attract sellers and remove some of the bullish pricing out the curve that happened on Tuesday. 

Further declines in EDZ5 and EDH6 are expected over the coming days and only a surprisingly weak employment report on Friday would reverse that trend.  EDZ5 can on dislocation trade to 99.47, but this level would be considered an extreme.  Otherwise, 99.48-.50 is considered as strong support.  

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