We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Mixed
Gold
Mixed
Oil - US Crude
Mixed
Bitcoin
Mixed
More View more
Notice

DailyFX PLUS Content Now Available Freely to all DailyFX Users

Real Time News
  • The US Dollar remains in consolidation mode against the Philippine Peso and Indian Rupee. Will the Singapore Dollar weaken as $USDSGD rising support holds ahead? Find out from @ddubrovskyFX here: https://t.co/HZ8Loqj3Ey https://t.co/6PCFkdj3ka
  • Follow @DailyFXedu for your regular #webinar updates with @DailyFX analysts and catch up on the webinars you missed. https://t.co/Da10QUg9r1
  • Greed has proven to be a hindrance more than assistance for traders. How does greed lead to #FOMOintrading? Find out from @RichardSnowFX here: https://t.co/aT8TZjlFqP https://t.co/Le8Qx6OOwV
  • $GBPUSD at the moment break-even straddles = 152pips meaning that for option traders to realize gains, the spot price must see a move greater than 152pips. Get your market update from @JMcQueenFX here: https://t.co/odj2lLRrGf https://t.co/RXCBwHGluG
  • $EURGBP has fallen over 6% since August and is now rapidly approaching a critical support level not reached since May. Will a break below accelerate the aggressive selloff? Find out from @ZabelinDimitri here: https://t.co/CBM8Fg7vM0 https://t.co/0yDnEpzQqR
  • The #Euro is struggling for direction against the US Dollar but the near-term downtrend guiding it lower since late June remains firmly intact. Where is $EURUSD heading? Get your technical analysis from @IlyaSpivak here: https://t.co/us6AINmuoe https://t.co/J4hQtyprYf
  • $DXY & $SPX500 hold steady after #FED rate cut. Get your update from @JohnKicklighter here: https://t.co/vqXlKCMDYA
  • Dow Jones & Dax 30 levels to watch ahead of the fed from @PeterHanksFX here: https://t.co/iUIrsygKz2
  • The politics of the US and UK may be starkly divided but their grip on the vast, $6.6 trillion global foreign exchange trade seems as tight as ever. Get your market update from @DavidCottleFX here:https://t.co/xTKHOvrIqg https://t.co/vtHhdnF82Q
  • How can confidence in trading help with avoiding #FOMOintrading? Find out from @WVenketas here: https://t.co/MY7j9ISn4S https://t.co/n7XwfiDZz2
Gold & Volatility Drop, Stocks Rise as Trade War Jitters Ebb

Gold & Volatility Drop, Stocks Rise as Trade War Jitters Ebb

2019-08-19 16:30:00
Rich Dvorak, Junior Analyst
Share:

VOLATILITY COULD GAUGE MARKET RISK APPETITE AS TRADE WAR UNCERTAINTY LINGERS

  • Gold prices, stocks and volatility whipsaw in response to mixed messaging on the US-China trade war front in the midst of flashing recession indicators
  • Watching the direction of volatility across asset classes could prove beneficial in gauging investor appetite for risk as market developments unfold
  • IG Client Sentiment data can also provide unique insight into the bullish or bearish bias of traders

As market fear and certainty rise, typically so does volatility. Such has been the case so far this month driven by the latest US-China trade war drama and signals from closely watched recession indicators like the 2s10s yield curve inversion which alarmed traders. Nonetheless, stocks are back on the climb as the dust settles following President Trump’s tariff delay announcement. With stocks in the S&P 500 Index attempting to stage a recovery from the steep slide recorded earlier this month – just days after the Federal Reserve cut rates for the first time in a decade at its July FOMC meeting – volatility is receding while gold prices drop.

S&P 500 INDEX REBOUNDS AS VOLATILITY RECEDES

S&P 500 Index Price Chart with Volatility VIX Index Price overlaid

Chart 1: Inverted S&P 500 Index Price and VIX Index Price – created with TradingView

That said, the US-China trade war could escalate once more at any given moment (like with an unexpected Tweet by President Trump). Markets could expect volatility, measured using Cboe’s VIX Index, to skyrocket back higher under this scenario. Similarly, a jump in the VIX Index could be mirrored by a major selloff in risk-assets like stocks in the S&P 500 Index. Also, worth noting is how stock market selling pressure could be exacerbated by further investor bearishness and worsening sentiment if slowing global GDP growth fears are rekindled or unwelcomed monetary policy decisions are hinted at by central bankers.

This is already evidenced by the massive S&P 500 ETF fund exodus in the month-to-date as Main Street grows increasingly pessimistic about bullish prospects for US equities. To keep tabs on a major catalyst that has potential to debase risk appetite and spark a selloff in the S&P 500, traders could watch price action in emerging markets along with USDCNH and the PBoC’s Yuan Fixing as a US-China Trade War Gauge.

VOLATILITY IN EMERGING MARKETS ETF FOLLOWS EEM SELLOFF & USDCNH SPIKE

VXEEM Index Price Chart Emerging Markets ETF and Chinese Yuan Spot USDCNH

Chart 2: Spot USDCNH Price,Inverted Emerging Markets ETF EEM Price and VXEEM Index Price – created with TradingView

In response to Trump’s initial threat to add another 10% tariff tranche on $300 billion of Chinese goods, the PBoC – China’s central bank – cut the Chinese Yuan fixing against the US Dollar to offset its impact. As such, the offshore renminbi (traded as spot USDCNH) soared with the PBoC pegging the Chinese Yuan above 7. Yet, spot USDCNH remains comfortably above the 7.0000 price level still which suggests currency traders remain on edge over US-China trade war uncertainty.

At the same time, VXEEM, which tracks the 30-day implied volatility on the EEM Emerging Markets ETF, has receded quite a bit as selling pressure in EM stocks was alleviated with news that Trump’s added layer of tariffs are supposedly no longer going into effect this September. Likewise, the drop in VXEEM was also witnessed in GVZ – gold price volatility.

GOLD PRICES TEND TO FALL AS GOLD VOLATILITY DROPS

Gold Price and GVZ Index Chart

Chart 3: Gold ETF GLD Price and GVZ Index Price – created with TradingView

While falling volatility is typically beneficial for asset prices, that is not the case for safe-havens such as gold or US Treasuries. Gold prices have pulled back alongside a drift lower in volatility as risk appetite begins to recover owing to the recent US-China trade war de-escalation. Yet, the possibility that gold bulls remain in control of price action seems quite possible considering the influx of demand for anti-risk assets, like long dated US government bonds, which has sent yields plummeting.

US TREASURIES REMAIN BID AS TRADE WAR UNCERTAINTY LINGERS

TYVIX Index Price Chart and TLT ETF and HYG ETF

Chart 4: US Long-Term Bond ETF TLT Price, Inverted High Yield Corporate Bond ETF HYG Price and TYVIX Index Price – created with TradingView

In fact, investors have poured a net $4.8 billion into the long-dated US government bond TLT ETF as market participants seek safety. Also, demand for the riskier HYG ETF has subsided as financial conditions remain strained with traders on a US recession watch while interest rates plunge and several sovereign yield curves invert. That said, closely monitoring trader sentiment and the several gauges of volatility could prove beneficial in determining the market’s next direction.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.