Euro poised for pre-employment numbers move

The June Eurodollar (Green) trades 7 bps lower to 98.18 as I write. This contract is one year beyond the center of debate for where the Fed will lift policy rates from zero. It trades near its 6-month low reached early January and not seen before since September of last year.

Like a number of other fixed income futures, an upward sloping trend line dating from early September of last year was broken on the March 19 FOMC date. The contract since, again like most usfi futures, has languished within a fairly tight range.

A break of support at the January 9 opening level of 98.155 could trigger a selling event. Interestingly, there has been a fair amount of volatility selling in the Green May 98.25 straddle and the Green June 98.125 98.25 strangle today. 

While we may not see support broken today or even tomorrow, I though it instructive to review some averages. The average absolute daily price change, the average absolute difference between the session high and low and the opening and close for 100-, 300- and 500-day ranges are shown in the table and chart below:

Generally speaking, I like to consider a move of at least 1.5 times a longer-run average as necessary to be classified as a ‘significant’ move prior to an Employment Report. We can see that the average net change and average open to close change is roughly 4 -4.5 bps in each of the 100-, 300- and 500-day examinations. The difference between the high and low is a little over 8 basis points over these periods.

In the past, we have reviewed similarly positioned contracts out the curve in reference to a "rolling" equivalent which for EDM6 would be the rolling ED9 or 9th quarterly contract from expiry. The reason we felt no need to do so here is that the EDM6 has represented an important point on the curve for some time and that dynamic is what we are trying to reference. If there is more ‘significant’ trade in that particular point in the future, it may imply strong inferences about expectations for the path of policy rates post lift-off.

Series/Days

100

300

500

Net Change

0.045

0.045

0.041

High-Low

0.083

0.089

0.081

Open-Close

0.043

0.043

0.039

 

 

For now, the market might settle in for the day. Tomorrow we should be prepared in case the aforementioned support is broken and a "significant" move is made. It would tell us that market participants are not prepared to wait for the Employment Report to position.

 

About the Author

Martin McGuire, managing director at TJM Institutional Services

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