What Volatility in Stocks, FX and Commodities Is Telling Us
• Volatility is an important measure in trading, but what it signifies can change with circumstance
• Not all volatility measures have a directional aspect like those for the S&P 500 (VIX) and oil (OVX)
• Activity without direction - as with the S&P 500 - can prove far more dangerous than the alternative
When dissimilar and unique asset classes start to move in concert, it is usually strong evidence of a common underlying driver - currently that is 'risk trends'. When volatility is added to the mix, the implications escalate to the entire financial system. Volatility levels swelled for many key assets over the past weeks with a distinct surge in just the past session. Most recognizable from the traditional volatility evaluation was the VIX index that reflects equity markets. While elevated, it is at historical staid levels. However, the intensity of price action above key support speaks to a very different evaluation; and we can see this in priced-based measures like the ATR. Oil's persistent decline offers a similar directional risk measure, but the uncertainty isn't at comparable levels. Gold in contrast has seen a dramatic surge, but in contrast to the typical directional association. And, FX markets are showing seismic shifts in activity that are levered by the likes of USDJPY. We look at what volatility measures across the financial system are indicating for the markets in today's Strategy Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.