Sept 9. Dollar is surging, yields edge higher

–Yields ticked higher yesterday with Green euro$ pack -4.0 and Blues -4.125.  Treasury curve weakness in the belly, with both 5/10 and 5/30 slightly flatter.  Another 40k new positions in EDH5 9962p, bringing total open interest to 312k on a payer of 5.5 and 6.0.  EDH5 futures settled 9964 with total open interest of 1.2 million.   Another notable put buyer, adding to positions, was in Green Oct 9787p for 6.0-6.5 (settled 8.25, OI +20k) and 9775p for 3.5 (settled 4.5, OI +14k).
–The dollar is surging.  Dollar Index was around 80 at the start of July, late yesterday was 84.30.  In July of 2013, there was a high of 84.75, prior to that DXY hasn’t been this high since 2010.  $/yen has surpassed 106, highest since 2008.
–Today’s news includes JOLTS and NFIB small business optimism index, which has been steadily climbing and is expected at 96.0.  Three year auction.
–There was a SF Fed research piece going around yesterday which suggested that the market was under appreciating the timing and magnitude of possible Fed hikes.  Some selling pressure was attributed to this story.  “The public seems to expect more accommodative policy than FOMC participants” and “…the range of the public’s forecasts is somewhat smaller than that among FOMC participants, suggesting the public may also be less uncertain about their projections.”  Duh.  Anyone who has compared the “dots” to the back end of the euro$ curve already knows this.  Additionally, the Fed’s own forecasts in the SEP have been well off the mark and are continually revised as time moves forward.  It gets down to the problems inherent with “models” that often work until there is some small kink like the housing crisis.  ‘Hmmm, our models suggest that rates should be higher and they’re not.  Must be something wrong with the MARKET.’  Reminds me of my favorite YZ story, where a group was sitting around the bar drinking and having a heated discussion about some sort of trade position.  YZ, in an effort to conclude the discussion says, “Let’s run it through the model…”  takes a quarter out of his pocket, flips it… “Tails.  Sell.”

Posted on September 9, 2014 at 5:19 am by alexmanzara · Permalink
In: Eurodollar Options

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