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S&P 500 Price Outlook: Stocks Jump, US Dollar & VIX Peel Back

S&P 500 Price Outlook: Stocks Jump, US Dollar & VIX Peel Back

2020-06-22 20:00:00
Rich Dvorak, Analyst
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S&P 500 PRICE OUTLOOK: STOCK MARKET ADVANCES DESPITE GROWING CORONAVIRUS SECOND WAVE RISK AS VIX ‘FEAR-GAUGE’ & US DOLLAR DECLINE

  • The S&P 500 trades back above the 3,100-price level as stocks continue to trend higher
  • US Dollar drives lower alongside the VIX Index ‘fear-gauge’ despite coronavirus second wave risk
  • S&P 500 could mirror the direction of trade war linked USD/CNH as US-China tension festers

Stocks edged higher on Monday measured by a 0.65% advance recorded by the S&P 500 Index. Stock market strength was reflected by the tech-heavy Nasdaq in particular with the benchmark printing a fresh record close.

US 500 BULLISH
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Weekly -13% 9% 1%
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Bullish equity investors appear comfortably in the driver seat still after S&P 500 futures staged a steadfast recovery after opening deep in negative territory to start the trading week. This comes despite recently announced Apple store closures and growing risk that a coronavirus second wave might loom.

S&P 500 PRICE CHART, VIX INDEX OVERLAID: 1-HOUR TIME FRAME (29 APR TO 22 JUN 2020)

SP500 Price Chart S&P 500 Outlook Stocks VIX US Dollar

Correspondingly, unfazed market sentiment has caused the VIX Index, a popular ‘fear-gauge’ that reflects 30-day implied volatility for the S&P 500, to unwind its 11 June spike higher. If the VIX Index declines further and takes out last week’s low, it could indicate that investors remain optimistic with their market outlook, which might open up the door for the S&P 500 to extend its advance.

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US DOLLAR INDEX PRICE CHART, VIX INDEX OVERLAID: 4-HOUR TIME FRAME (22 APR TO 22 JUN 2020)

US Dollar DXY Index Price Chart VIX Second Wave Coronavirus China Tension

Chart created by @RichDvorakFX with TradingView

Meanwhile, as the VIX drifts lower, the US Dollar Index (DXY) looks like it has started to experience another episode of selling pressure. This follows an attempted rebound staged by the broader US Dollar over the last two weeks. If measures of implied volatility or market uncertainty continue to decline, it could indicate that the US Dollar might face sustained headwinds that keep the DXY Index under pressure.

That said, upcoming PMI data has potential to spark a return of demand for safe-haven currencies, like the US Dollar, if the leading economic indicator fails to confirm the v-shaped economic recovery thesis. According to the DailyFX economic calendar, the June 2020 flash PMI for the US manufacturing sector is expected to cross the wires at 48.0 and will be compared to the prior reading of 39.8.

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S&P 500 PRICE CHART, SPOT USD/CNH OVERLAID: DAILY TIME FRAME (03 NOV 2017 TO 22 JUN 2020)

SPX500 Price Chart Correlation to USD CNH Chinese Yuan

Chart created by @RichDvorakFX with TradingView

In addition to market sentiment surrounding coronavirus second wave risk, the threat of rising US-China trade uncertainty remains noteworthy. The United States just added four more Chinese-state media outlets to its designated foreign missions list requiring extra oversight amid the latest re-escalation of Sino-American tension. Spot USD/CNH perked up immediately after this headline crossed the wires as the US Dollar strengthened against its Chinese Yuan counterpart.

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Seeing that a generally strong inverse relationship is typically held between the S&P 500 Index and spot USD/CNH price action, stocks could soon face a day of reckoning, which is a bearish stock market scenario that might garner more credence if USD/CNH keeps ticking higher.

Keep Reading – USD/CAD Price Outlook: Canadian Dollar Climbs with Crude Oil

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

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

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