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Low Liquidity Tempers The VIX Yet Currency Market Volatility Still High
Wednesday, 31 December 2008 16:15:58 GMT  |  John Kicklighter, Currency Strategist
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The year-end holiday is thinning out the markets and volatility is suffering for it. From the traditional equities side of the financial market the benchmark VIX index has dropped back below 40 percent for the first time since October 2nd. However, while this is a multi-month low, we should remember that this level of activity is still exceptionally high (especially for such a low liquidity period) on a historical basis. For the currency market, the hold over in uncertainty and its influences on price action is more clearly defined. The DailyFX Volatility Index reveals that implied volatility behind the most liquid majors is just off its record highs. What does this mean for the new year when market is back up to full capacity? It means deleveraging and fear are lingering market conditions that could be easily catalyzed by another financial seizure or swell in recession fears.

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