Euribor – December 2009

Nicole Elliott from Mizuho Corporate Bank at 10/15/09

Comment: Almost record volume last week (and record for this contract on the 9th October), just behind that of the week ending the 7th June, suggest traders have not entirely grasped the dynamics behind this market; either that or blame it on those slashing two by one option spreads. Three-month Libor at 69 basis points today, well below the ECB’s target 1.00%, and unlikely to drop much further as year-end pressures start building and excess liquidity is not renewed after mid-November. Prices are clinging to the top of the Ichimoku ‘cloud’ in a potential inverted ‘flag’ formation. Moving averages have crossed to bearish so we shall continue to favour another small dip lower to trendline support and the bottom of the cloud. Were bearish momentum to increase a drop to our measured target at 99.000 is not unreasonable. Then look to buy June and Sep 2010 contracts.

Strategy: Possibly attempt tiny shorts at 99.165; stop above 99.225. Cover ahead of 99.045/99.000 and look for signs of a ‘spike low’ to go long.