Traders Looking For Clues In Fed Powell’s Testimony Tomorrow

Eurodollar options volume of 1.5M+
Eurodollar Rate Futures and volatility higher
Traders looking forward to Fed Powell’s Humphrey Hawkins testimony
Interest Rates Report

Interest Rates Report

ED Futures and Options Market Recap: February 10, 2020

Eurodollars traded a wide range prior to the pit open, then settled into a steady climb higher, a rare break from going the opposite direction of equities, which were higher today as well. With a lack of economic data points, it seems as if traders are imposing a dovish tilt to Powell’s testimony.

Big Trades

EDH1 98.625/98.875 call spread 2x3, selling 10K at even (see note)

EDU0 98.25/98.375 put spread 1x2, paying 2.5 on 50K (see note)

EDU0 98.125/98.25 put spread, selling 22K at 1 vs 98.51, 20K

EDU0 98.75/98.875/99.00/99.125 call condor, paying 1 on 20K

Short Sep (E0U, EDU1) 98.375 puts, paying 5 on 40K.


 

Things to Watch in Interest Rate Futures

1) Continued liquidation of the large position established during Asian market hours.

Asian Block Trades 021020.png

I had mentioned last week that this player was taking on the chin a bit with the recent moves. Although directionally accurate, the move in volatility (which has been moving the same direction as futures) was not kind. Perhaps seeing this action firsthand has given this player all the reason they need to lighten up their position. Interestingly enough, they have yet to shuffle their EDZ0 position.

 2) The EDU0 put 1x2 that was done for size is very interesting. As we have spoken at length about the desire to pin the 98.25 strike in the front contracts, the only time we’ve seen much action in the EDU0 has been a part of the EDH0/EDM0/EDU0 98.125/98.25/98.375 put fly strip. We’ve also seen some covering of this position. In fact, last week we had a seller of the EDU0 81/82/83 put fly. It seems as if attention is now turned to pinning the 83 strike. This would certainly make sense on the back of a large US bank calling for FRA/OIS to collapse to between 5-10 bps by the end of June. If that is the case, then this put 1x2 looks to be a bit off target.

 

 3) Tuesday will see Powell begin the “Humphrey Hawkins” testimony before the House Finance Committee. Traders will be looking for any hints as to the future of monetary policy. As it stands, Bloomberg has the current projection at just over 1.5 cuts by year-end.

WIRP 021020.jpg
Source: Bloomberg

 

About the Author

Albert Marquez works for Chicago Capital Markets (CCM) and covers Eurodollar & Treasury Options and Futures. Albert can be reached  on Twitter @STIR_Report or amarquez@ccmmarkets.com