The top chart shows the US 10-Year real rate and the middle chart is the EURUSD. The correlation coefficient (cc) between the two series is -61% (bottom indicator). This correlation does not always hold true, but it has been the dominant relationship since March 2022.
The core PCE rippled through to yields, and the real rate increased following the inflation series release on Friday. It isn't a surprise that EURUSD declined given the cc.
The downside catalyst was the surprise 517,000 NFP print on 3rd February, which pressured EURUSD (blue arrow). Since then, EURUSD has been trading in its bearish channel between the lower blue and red bands. Momentum is defined by its stochastic, which is firmly in its lower quintile (green rectangle). This denotes a robust bearish energy.
The hourly chart has shown strength on the day. However, given the higher timeframe downside bias, resistance levels may be interesting to shorts. Here, price is wrestling with the central pivot, P. If the trend-following EMAs and momentum-based stochastic cross down, the shorts may come in from the sidelines.
The next level of interest is the R1 resistance pivot. It overlaps with price resistance (green rectangle). This makes R1 a formidable level for the bulls to overcome.
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.