The GER30 has had a negative correlation to the US real rate since June 2021 (red arrow). Despite the geography, this makes a certain sense.
The real rate is a proxy for sentiment; as perceived risk increases, risk assets are affected. This relationship heightened during lockdown. Risk aversion is at the forefront of market participants' behaviour.
February has seen the real rate steam ahead, particularly after the surprise NFP payroll beat and CPI data release. The real rate uptrend is emphasised by the black up-sloping trend line (top chart). This acted as a headwind for the GER30 (bottom chart), which has moved sideways for the month (black horizontal line).
Yesterday's GDP came in below consensus, which resulted in the real rate breaking down (green square). Given the inverse relationship between the index and the real rate, this may act as a tailwind for GER30.
Ovehead Resistance Targeted
In a previous article, we suggested that 15,500 was immediate overhead resistance. This level has held three times during February. Yesterday, the GER30 completed a potential trough, i.e. it closed above the previous day's high (blue horizontal). This provides the paltform for the index's next assault on 15,500, especially give the real rate breakdown.
Volatility is expected today, as core PCE, the Fed's preferred measure of inflation, is scheduled for release at 1:30pm GMT.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.