The Chart du Jour

The String on Which the Fed Pushes

November 2, 2001

By, Barclay T. Leib

Short term interest rates just made something on the order of a 40-year low in the United States, as reflected in the long term ascent of Eurodollar futures charted monthly below.

Chart constructed with Advanced GET End-of-Day>

It is generally a bad idea to use continuous interest rate futures to draw Fibonacci bands on top of (actual interest rates being more correct), but on a monthly basis, this chart suggests we are quickly approaching a level where the Fed's continuous "pushing on a string" to prop up an overly debt-laden economy will run out of gas. Specifically, the Fibonacci rhythm stretching back to 1982 will be complete if and when the front-month Eurodollar futures contract reaches 98.38.

Meanwhile on a daily basis, we see more immediate resistence mounting near 98.03. Spikes up to 98.13 might occur, but we also see an Advanced GET-generated Elliott wave count pointing to an about-to-be completed 5-wave ascent from March 2000.

Chart constructed with Advanced GET End-of-Day>

We have no trading recommendation in Eurodollars to make at this time. What we do see is an interest rate environment where the Fed's magic ability to fix past problems with lower rates is soon set to run out of bullets. Looking back in time for example, the Fed had ammo in its interest rate and monetary policy post the 1987 equity crash. Now it has none. We find this ever-so dangerous a longer term situation. An economy that has lived for so long almost like a junky relying upon its next interest rate fix, now has little stash left to hit upon.

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