These Eurodollars worth a closer look

October 23, 2015 08:47 AM

I can understand why someone would want to sell March 2016 Eurodollar (EDH6) contracts at 99.52 today (risking a settle at 99.535 or higher). The low print for the last 5 sessions has been 99.525. That was the contract high settle until Oct. 14. Only minutes ago and on modest volume this morning, EDH6 traded to a new low by a full basis point.

The sideways trade over the last 8 sessions did not confirm the bullish advance on Oct. 14 but does remove any short-term overbought conditions. That Oct. 14, 4 basis points advance was reversed the following session and subsequent bullish price action has been modest and fleeting.

Technically, the two session price action which includes the recent Oct. 14 high, formed a bearish "dark cloud cover." The two session period ending Oct. 20 formed a "bearish engulfing." These patterns caution a pull-back.

Finally, a bullish trend-line advance dating from Sept. 25 appears likely to fall today as EDH6 would need to settle at or above 99.535 in order to maintain that trend support.

Time will tell if recent price action is simply an additional small concession in a consolidation that will end in another in a long series of near-expiry contracts march toward zero policy rates. If as indicated EDH6 settles 99.535 or better today, we would be less inclined to expect near-term weakness in this contract.

Otherwise, for as little as appears to be the cost of admission, this contract may offer exciting prospects for someone who envisions stronger Q4 growth.


About the Author

Martin McGuire, managing director at TJM Institutional Services