A feeling of positivity regarding stocks is present. Here, we consider risk sentiments in Europe. We use FXCM GER30 as a proxy.
The top chart is the weekly GER30, with the US10-year real rate in the middle as a general measurement of sentiment. The bottom shows the correlation coefficient (cc) between the two.
Risk sentiment is optimistic with the real rate declining (black trend line). I.e., the required rate of return is becoming less cumbersome. An appreciation in the GER30 has followed. Correlation between the GER30 and the real yield is inverse, and the cc is registering a robust -0.91.
We are now monitoring for a higher trough (HT) in GER30. A close above Thursday's high is bullish. This will provide a potential platform for further price appreciation.
Risk sentiment is positive. Further moderation in the real rate will be constructive. It is likely to be accompanied by bullish price action, as the lowered required return is celebrated.
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.