Wednesday, August 31, 2005


Here is a daily chart of the March 2006, 3 month eurodollar futures. I've drawn in the bear market boxes I have been using for the past 18 months for all the 3 month eurodollar contracts.

As you can see eurodollar traders seem to be anticipating a halt to the Fed's policy of steady, quarter point increases in the Fed funds rate. The market has really taken off the past couple of days and I think Katrina had more than a little to do with this.

In any case you can see that the market is approaching the 1/2 point of its current box near 95.97. I think this is a minimum target for this rally and I think a continuation up to the top of the box near 96.20 is a least an even money bet.

But the bear market is not over. As I said in my 2005 bond market forecast, any pause by the Fed will end once people start to see a very strong economy in 2006. I think next year will be a bearish one for the bond market in general and I think we will see cash 3 month eurodollars trading at 4.75% by the end of 2006. This would probably mean that the futures will drop below 95.00 sometime next year.

No comments: