The potential for “buy the rumour, sell the fact” warrants caution when CPI is released

  • US30
    (${instrument.percentChange}%)

The US10Y Treasury yield has increased to 2.82%. The movement has been relatively quick, to the point that the RSI has registered as overbought (blue rectangle). The bottom shows its correlation coefficient against FXCM's Dow Jones Industrial Average CFD, US30. The current correlation is -0.36. Certainly not as strong as the Nasdaq's correlation.

Nevertheless, it does infer that a negative relationship exists. To this end, if the yield pullback as the RSI normalises, this would support the US30, if the relationship still holds. We note the CPI will be released today, and the headline number is forecast at 1.2%. This inflation may already be priced into yields, and barring any blowout print market participants may take the release as an opportunity to exit short positions and normalise momentum. If this does happen, participants are likely to rotate into stock indexes, e.g. US30.


source: www.tradingview.com

The CPI print is likely to introduce volatility into the market. When this settles, it will be helpful to consider the US30 hourly chart. If its EMAs and stochastic cross positively, it may suggest that money rotates back into risk. In this case, a movement by the stochastic to the 80+ area (blue arrow) will indicate an underlying bullish momentum, and yields will likely be dipping as bond shorts taking profit.

Russell Shor

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.

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