The US30 jumped 2% yesterday, pushing the index into its bullish area between the upper blue and red bands. The daily stochastic is heading towards the 80+ area (green rectangle). If it hits and maintains, an underlying bullish momentum will be present.
Yesterday's article suggested a possible pullback scenario for the 10-year real rate. Consider the chart above, which shows the real rate at the top and the US30 underneath. There seems to be an inverse relationship at work between the two.
As the real rate appreciated in September, the US30 declined (green arrows). A likely reason for this is the time value of money relationship between rates of return and present value.
The real rate then stabilised, as did the US30 (black rectangles). If the overbought condition normalises and we see the real rate pullback, this will likely support the US30 (red arrows).
I.e. if the US30 maintains its bullish zone, this scenario may play out.
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.