A robust economy is driving real yields higher, supporting FXCM’s USDOLLAR basket
Source: www.tradingview.com
The US 10-year real rate is a key driver of FXCM's USDOLLAR. The two instruments have a robust positive correlation coefficient of 79%, with the USDOLLAR generally tracking the real rate.
The higher real rate has resulted from bonds selling off due to a resilient economy. Investors have positioned for interest rates to remain elevated even after the Fed ends its hiking cycle i.e., higher for longer.
The Atlanta Federal Reserve's GDPNow forecasting model estimates real GDP in Q3 at 5.6% as of 1 September. Moreover, whilst the labour market has softened, the current unemployment rate is still low at 3.8%, and is still considered tight.
Source: www.tradingview.com
Given the positive correlation between the real yield and the USDOLLAR, it is interesting to note that the US 10-year real yield is bullish. Its green 5-day EMA has bullishly crossed above its orange 10-year yield (red circle). Moreover, its RSI is on the bullish side of 50 (blue rectangle). If this position is maintained, the underlying momentum will be biased towards even higher real yields. This, in turn, will likely provide further support for the FXCM USDOLLAR basket.
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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