Wednesday, February 10, 2016

Eurodollar Future Longs; Additional 'Kink' in Bull Armor

Eurodollar and Treasury futures are lower in early trade stateside.  The dollar, global equity market and even oil are relatively stable to slightly higher.  Gold is lower. 


The Treasury yield curve (5-30) flattened by 2 basis points yesterday while the Eurodollar futures yield strip flattened throughout the first 7 years.  Volume was modest.  Open interest was higher in Treasury TU, FV, TY and US (+34K, +30K, +29K and +3K respectively).  In Eurodollar futures however, open interest declined for a second session. 


Over the last two sessions, Eurodollar future open interest declined by over 218K.  The last time Eurodollar futures fell by this amount or more over a two session period, where there was no expiring (roll off) of a contract, was in December 2014.  Following that Dec ’14 open interest decline, EDH7 fell by 35 basis points over the next 8 days. 


Chair Yellen appears before the House Financial Services panel this morning.  Might she say something that calms the market? 


For whatever reason, the contingent of Eurodollar longs, despite having the best 5 weeks in recent history has decided to remove some of their position.  This is not trend friendly.  There is little else that indicates the bullish advance is coming to an end. 


There was a bearish ‘shooting star’ pattern developed in many Eurodollar and Treasury contracts by price action on Tuesday. These will be confirmed if prices remain lower today.  For EDH7, a bullish trend line support is noted at 99.175.  A settle under this level provide an indication of lost momentum. 


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