The FXCM US.BANKS basket has moved into its bullish channel between the upper blue and red bands (top). Moreover, its stochastic (middle) is moving towards the 80+ levels (red arrow). If it hits and maintains, the positive momentum will likely be price supportive.
This price action is strange, given the inverted 10-2 yield curve. However, whilst Q3 earnings have declined due to lower deal activity, interest income has counted positively.
The bottom candlestick series shows the relative strength (RS) of the US.Banks basket and FXCM's SPX500 CFD. Here we see that the RS is also in a bullish channel.
Given that the market is forward-looking, this position suggests that the market may expect the yield curve to steepen. In this regard, we need to see a moderation in median CPI i.e. that sticky inflation is yielding - a prerequisite to a Fed pivot. If this happens sooner rather than later, US.BANKS may represent value at current levels.
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.