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10-year yield and Euro-Bund-Future part 2 – The technical outlook for 2021 – columns

Lunten + Keil: The search for the ground

The USA also plays an important role in setting the pace on the pension side. That is why we deliberately started our interest rate outlook for 2021 with a look across the pond. But now we’re finally coming to Germany. Committed to our fundamental approach, we traditionally start with a very high time level: Specifically, the half-year chart of the 10-year yield in Germany. Long-term viewing of the charts since the late 1990s contains the message that the interest rate rally has been going on for a very long time. The candles from the 2nd half of 2019 and from the 1st half of 2020 each have distinctive lunches, i.e. H. The 10-year yield recovered noticeably from the interim period lows of -0.74% and -0.91%. The bottom line is that there are two candlestick patterns, each reminiscent of a “hammer” (see chart). Interestingly, the two highs of this potential candlestick reversal pattern (-0.17% vs. -0.14%) are very close together. But not only that, because at the same time, the said highs harmonize perfectly with the lows from 2016 at -0.17% and -0.20% and the 23.6% fibonacci retracement of the last major yield slide since 2013 (- 0.21%).

10-year return Germany (semi-annually)

Chart 10-year return for Germany

Source: Refinitiv, tradesignal²

5-year chart, 10-year returns for Germany

Chart 10-year return for Germany

Source: Refinitiv, tradesignal²

The ultimate clock: -0.20%

A large number of technically important brands therefore coincide at around -0.20%, so that an accumulation zone of elementary importance arises here. Another chart pattern indicates that the bear market trend on the interest rate market has reached a certain degree of maturity. The base downward trend since 2008 (in the new year at -0.24%) in combination with another trend line since 2015 has created a classic wedge formation. A sprint over the above The accumulation zone would have the side effect that the described wedge would then also be “bullish” dissolved. Compared to the previous period candles, the candle of the 2nd half of 2020 also shows a very small fluctuation range. A high-low range of -0.37% to -0.67% testifies to the technical no man’s land in which the 10-year yield in Germany is currently located. The bottom line is that with the accumulation point at -0.20%, we emphasize the same catalyst as before the 12-month period. There is hardly any other chart that investors can pinpoint the risk of a trend reversal in returns as well as on the six-month chart presented. Especially from a risk perspective, this is one of the key charts for 2021.

10-year return Germany (semi-annually)

Chart 10-year return for Germany

Source: Refinitiv, tradesignal²

A (presumably) unprecedented course pattern

In this context, the monthly chart of the 10-year rate of return Germany brings to light another exciting dimension. The price development of March 2020 ensured a monthly candle that was remarkable in every respect: After all, the entire fluctuation range of 2020 took place within the few trading weeks in March! The simultaneous expression of the annual low (-0.91%) and the high (-0.14%) leaves an outside rod that dwarfs the high-low range of the previous nine months. The subsequent price development also takes place within the March candle, so that there are now eight inner bars in series (see chart). The immediate change from one extreme to the other is unparalleled in the history of the stock market and documents the special position of the March candle. The above Month / year high thus provides a further argument for the importance of the key area already worked out at -0.20%. If the signal generator is activated, the 10-year return will again be in positive territory. The lows at around 0.20% then define an initial start-up target before the high from autumn 2018 at 0.58% returns to the agenda.

10-year return Germany (monthly)

Chart 10-year return for Germany

Source: Refinitiv, tradesignal²

169 and 180 as large guard rails

At the end of our pension outlook, we put the Euro-BUND-Future to the test. Attentive readers will have noticed that we have chosen exactly the same headline as last year. After all, the same catalytic converters as they did 12 months ago still apply. However, a few details emerge: The record high from 2019 at 179.67 continues to exist. I.e. the high for the year from March (179.56) remained “wafer-thin” below the all-time high (see chart). In comparison to the mirror-image development in the 10-year return, there is a divergence here. Nevertheless – viewed soberly – a jump over the hurdles at 179.56 / 179.67 would provide a procyclical buy signal. On the other hand, it is important to prevent a sustainable slide below the key brand at 169. Here the lows of the recent past together with the old all-time high of 2016 (168.86) form an important retreat zone. Ultimately, a break in this bastion would turn the sliding zone of the last quarters into a top formation – including a calculated discount potential of around 10 “big figures”.

Euro-BUND-Future (Quarterly)

Chart Euro-BUND-Future

Source: Refinitiv, tradesignal²

5-year Euro-BUND-Future chart

Chart Euro-BUND-Future

Source: Refinitiv, tradesignal²

Sliding zone or top: 169 as “game changer”

With the Euro-BUND-Future, too, all price activity takes place within the candle of the 1st quarter. So there are also “inside candles”. In addition, the quarterly trading margin continues to dry up. Both phenomena are warning signals, especially since various indicators (e.g. RSI, MACD) sometimes show divergences over several years. Using the monthly chart, we would like to underpin the signal character of the core support at around 169. Finally, the Fibonacci cluster consisting of two different retracements (169.51 / 168.28) and the 38-month line (current at 168.48) confirm the importance of the described retreat zone (see chart). A break in this bastion – combined with an upper trend reversal – would also put a big question mark on the base upward trend since 2008 (current at 164.45). As a final aspect, we would like to take up the ever-decreasing fluctuation ranges. In the weekly range, this behavior pattern is reflected in a historically low trend dynamic (ADX) and in a very small distance between the Bollinger Bands. In the past, such a constellation was often the ideal breeding ground for a new dynamic movement impulse.

Euro Bund Future (Monthly)

Chart Euro Bund Future

Source: Refinitiv, tradesignal²

Conclusion and timetable for 2021

Without great empathy, many investors now often take the bond market development as more or less given. We do not share this indifference. Rather, the current sedentary lifestyle is what makes the starting point for the new year so charming. It’s a good basis for surprises – including positive returns in Germany again. The outside bar-inside bar pattern described defines the absolute “make or break” mark in the 10-year return (see chart). The real added value of the interest rate analysis in 2021 lies primarily in the warning function for emerging stress in other asset classes. An increase in the 10-year US return above the magical 1% mark is likely to have lasting effects on the development of precious metals, but also on the stock market in the new year. In this context, we would like to quote Friedrich Dürrenmatt: “The rational in people is their insights, the irrational is that they don’t act accordingly.” Please remember the Swiss writer in the New Year, especially when the key points on the interest side are 1 % or -0.20% should be skipped. In the sense of Kästner, the returns would then be a step further!

10-year return Germany (monthly)

Chart 10-year return for Germany

Source: Refinitiv, tradesignal²

5-year chart, 10-year returns for Germany

Chart 10-year return for Germany

Source: Refinitiv, tradesignal²

This article is an excerpt from the large annual technical outlook for 2021. Den full annual outlook is available in the December issue of our customer magazine “Marktbeobachtung”. Just take a look at our homepage and find out more on our Market watch page.

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