June 22. The best laid schemes…

The best-laid schemes o’ mice an’ men
Gang aft agley
-Robert Burns

–Yellen maintained a cautious stance in yesterday’s congressional testimony.  Kuroda said “monetary policy doesn’t always turn out as expected.”  Asset purchases have expanded CB balance sheets and whatever economic activity could be pulled forward has likely already occurred, blunting the impact of new stimulus.
–The interesting thing about yesterday’s price action is that there was a slight steepening of the curve.  Red/gold euro$ pack spread had been churning around 60 bps, but settled yesterday at 66, up 2.5 on the day.  If the UK stays, the expected response in US markets will be that tightening odds increase, and given recent trading history, one would think a flatter curve would result.  However, given Yellen’s dovish and gradual inclinations, the curve may actually begin to steepen, which I would take as a signal to jump on board.  Back month eurodollar premium is rather inexpensive currently; worth owning some puts.
–Another feature of yesterday’s trade was that JPY had an outside day and closed higher.  Yen’s strength is partially interpreted as a ‘risk-off’ signal, but the pressure for a stronger yen, (lower $/yen) appears to have been stemmed for now, with short term target of around 110.

Posted on June 22, 2016 at 5:23 am by alexmanzara · Permalink
In: Eurodollar Options

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