Merry Christmas! Higher Interest Rates Ahead

The Fed’s Zero Interest Rate Policy is on thin ice

I am not an economist. I look at charts. When the charts send a clear signal I take it as an indication of what MIGHT happen. I deal with probabilities and possibilities, not predictions or certainties.

The charts are yelling from the hill tops about the Eurodollar market (the interest rate, not the currency unit).

Let’s take a look at the chart structure for the Eurodollar market:

Eurodollars trade at the inverse to actual yield. A Eurodollar price of 100 means 0% yield, 98.00 means 2% yield, 92.00 means 8% yield. I believe we are in a trend that will take Eurodollar rates to 5% yield over the next few years.

The monthly graph shows that Eurodollar prices act like a yo-yo, alternating strong up-trends with strong down trends.

Not since the Great Depressoin have we had a Zero Interest Rate Policy (ZIRP) for this length of time. See the long-term chart of T-Bill yields below:.

The weekly chart of the June 2017 contract completed a massive and powerful head-and-shoulders top in late May. The target of this pattern at 96.70 (3.3% yield) was quickly met. The rally from the September low to the October high was simply a counter-trend retest of the top. Importantly, the construction of the weekly chart now suggests the possibility of a H&S top dating back to August 2011. If valid, this pattern would have a target of 94.50 (5.5% yield).

The daily chart displays another H&S top, completed on December 19. This pattern should lead to a retest of the September low at 96.50 (3.5% yield).

My conclusion from the charts — a possibility of a 5.5% Eurodollar yield by mid 2017.

Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.