Wednesday, May 25, 2016

EDZ6; Not Sold on Bullish Engulfing

Currently EDZ6 is trading 1 bp higher on the day, recovering from a lower opening at the 200 day moving average of 99.02.  Unable to create a new low today, the contract is forming a bullish engulfing if it settles 99.04 or better.  Price action over the last five sessions has been mildly bearish with very modest trading ranges and very small differentials between opening and closing levels. 

Generally speaking, the modestly bearish trade has as much spoken of indecision than strongly projecting lower levels.  The inability to settle lower today could have influence on bearish-minded traders who have been expecting more from the post-April FOMC Minutes led decline.  Light volume leaves more definitive classifications treacherous and a continued watch of unfolding trade should offer better directional inferences than already provided.  To be clear, while there has been no ringing endorsement of a protracted sell-off in the modest declines since last Wednesday, positioning conditions as well as a lack of recovery from the robust single-session decline continue to point to the risk for any substantial move being in the direction of higher implied rates.   

We have been and continue to anticipate further pricing of a mid-year policy firming and believe this has largely been supported by economic data, the constant stream of Fed rhetoric, other asset price movement; credit spread movements and the price action seen at the front end of the yield curve.  


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