Last Wednesday we looked at the potential development of a bearish technical pattern that took a bit of imagination to envision, but offered a generous payout if the 6% objective of the formation was eventually achieved ("S&P 500 may be signaling a 6% correction").
More than simply jumping higher on open yesterday, the December 2015 Eurodollar contract gapped higher, rallied to a new contract high and finished unchanged from opening level, but 4 basis points higher from the previous close. There is a lot going on there and much of the message is conflicting as regards the nature of trend and the prospects for future price action.
Despite concerns for month-end Greece debt payment failure, Treasuries are trading lower. Price action has yet to excite bearish traders as 10-year yields remain comfortably below 2.5%. This may not remain the case if Treasury futures settle just a bit lower.
Eurodollar and Treasury futures are higher in early trade following yesterdays curve steepening activity which left the very front end of the curve marginally higher and the back end well lower. The Eurodollar futures yield curve steepened by 5.5 bps over the first 8 years while the Treasury 5-30 yield curve added another 3 bps.
The September 2015 Eurodollar future is 3.5-4 bps higher, marking the best session since early April. The news from the FOMC was not so outside consensus that this price action should have been expected "unless market participants were offside short," expecting that there would be greater inferences made about a rate hike coming soon.