Friday, October 23, 2009

The Debts of the Lenders: Eurodollar Futures and Commitment of Traders Turn Bearish

I haven't covered the Eurodollar futures in a while but it is a topic I discussed earlier in the year as a potent tool of discovering which way the market is headed.

Ms. Nicole Elliot of Mizuho is cautiously bearish on the Eurodollar contract "Possibly attempt the tiniest of shorts " but believes the longer term trend on the contract is up for the foreseeable future. Her track record is quite good by the way.

The persistently overbought Eurodollar contract has contributed to lower interest rates and greater liquidity sloshing among institutions. Greater liquidity = more risk taking. More risk taking = higher commodity prices and corresponding commodity currencies like the Aussie and Real. So, it goes to reason that a lower Eurodollar contract means higher interest rates (increased borrowing costs) that hamper risky business.

Other market sentiment timers like Mr. Alex Roslin who uses Commitment of Traders analysis are more bearish and note the accelerated outflow of fund buying by big institutions.
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