The Wide World OF Eurodollar Futures
Fundamentals
This Xpresso is going to cover the basics of Eurodollar futures, one of the most active and liquid futures contracts currently traded. Eurodollars are deposits in foreign banks held in U.S. dollars. They have nothing to do with the Euro currency and the foreign banks are often not located in Europe. Traders can use Eurodollar futures to take a position on the future movement of the LIBOR (London InterBank Offer Rate), as Eurodollar futures reflect a 3-month LIBOR rate. Similar to Fed Fund Futures, the price for Eurodollar futures is determined by subtracting the expected 3-month LIBOR rate from 100. So, a Eurodollar future that last traded at 99.42 would reflect an expected LIBOR rate at settlement of 0.58. A declining trading price indicates expected higher rates and vice versa.
Technical Notes?? -? View Today’s Chart
Short-term technical analysis isn?t especially useful for Eurodollar futures, since interest rates don?t tend to move drastically up or down. Looking at a 5-year weekly continuation chart shows the March 2016 Eurodollar future finding support near 99.30, a level last reached in late 2011. The slope of both the 20- and 50-week Simple Moving Averages has turned downward as well. Since mid-2015, the weekly chart shows a series of lower highs and lower lows, indicating an expectation of higher LIBOR rates going forward.
————————————————————————————————
This article is provided for informational purposes only. No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice. The content provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness. optionsXpress makes every effort to provide timely information to its recipients but cannot guarantee specific delivery times due to factors beyond our control. Derivatives involve substantial risk and are not appropriate for all investors. Please read the “Disclosure Statement for Futures and Options” prior to investing in futures or options. For investments using a straddle or strangle options strategy the potential loss is unlimited. Multi-leg option strategies are subject to multiple commissions. Profits may be eroded by the commission expended to open and close the positions and other risks apply.