After the US bond yields rose today, German Bund Yields also raised to 2.58% and now trading at a 12-year high. Since market participants know the German 10-year bond as the risk-free reference asset for the Eurozone, this can be read as a long-term high inflation signal in the whole of Europe. Especially after that, European Central Bank President Christine Lagarde said, “There is every reason to believe that we will make another 50 basis points in March,” Investors read that as a signal for more rate hikes for a more extended period. Other ECB members, including Italian central bank governor Ignazio Visco, support this more hawkish reaction.
After mentioned comments, Germany’s 10-year bond yield rose above 2.5% to test 2.58% earlier today as its 12-year high. We should add the ECB members’ comments to what FOMC members have been saying recently. In that case, with labor market conditions on both sides of the Atlantic Ocean, Re-increasing inflation, and better-than-expected economic data in the US, hopes of a quick end to the current tightening cycle will be an unrealistic expectation. Markets are now pricing in a peak ECB rate of around 4.50% by the end of the year, while the Fed target is also expected to rise approximately 5.5% by the end of the first half of this year before pausing the rate hike cycle.
As a reaction to these market changes, DE30, which has been increasing since the beginning of the year, started to slow down its path and create new lower lows and lower highs in the past two weeks. With these fundamental data, while the price is also slowly falling under 20DMA, we can expect more price fall for now, with crucial support sitting at 100-DMA at 14,315.