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The thing about Eurodollars is, they trend. Often for months and sometimes for years. November of 2018 was the reversal point for EDz1. Low was 9676.0. 300 tick rally in two years! Prior to that broken 150 plus ticks from sept of 2016 (9840 then).
We’ve been in a holding pattern since March, for obvious reasons. The whites and the reds may not go far. But the blues, and maybe greens. They can move. Fed has a stance, yes. But Fed was supposed to hike in 2019 and we got 3 cuts.
What I have been saying since this summer is, yeah I don’t expect Fed to love soon either. But what’s the point of owning ED AT LIBOR CASH two or three years out the curve? Risk for longs was way higher, still is, although not as blatantly lopsided.
Everyone (big banks), Fed, futures markets, everyone you would talk to had 3-4 hikes penciled in for 2019 in late 2018. I’ll never forget it. And all the sudden. Waves of buying. Paper lifting everything, options flow crazy skewed, pointing higher. Grinded higher.
Later on the fundamentals came in, tariff war, pandemic, everything. But market lead all of it. Market made the Fed follow them. We priced all the cuts in before Fed got there. Everyone was yelling, “Fed has to cut”. The Fed doesn’t have to do anything, but they folded.
I don’t think market can push fed around as easily to the downside, but they may try it. Not in the front 4 contracts, but further back. It could happen. And pricing may not lead to anything, look at 2013’s taper tantrum.
Maybe I’m making too much of this price action, but if you followed me in 2018-2019 I was out here noting the flow and trying to figure it out. Chasing the same thing down now. The moves the last 3 days are a big deal IMO, faded or not.
