*USD flat in quiet trade, vols low
*US equities closed marginally higher, Europe set to open lower
*Gold toys with $1900 level, oil around $71
US equities closed mixed with the Nasdaq and small caps leading the way in the green, up 0.5% and 1.4% respectively. While the Dow and S&P500 were down, the meme stock frenzy continued with AMC up 15% and close to 1300% this year. Mixed performance in Asia this morning with the MSCI All-Country World Index hitting its sixth record close in seven days.
USD is quiet amid low volatility generally across the FX space. There are no Fed speakers this week due to the blackout period ahead of the FOMC meeting next week with markets uncertain on how much tapering talk there really is.
Market Thoughts – Low vols…
There is a general calm about markets this week with last Friday’s US jobs report not strong enough to price in a change in Fed rhetoric which many of the bulls were hoping (1 million plus headlines etc), and not nearly weak enough for the risk dial to move. Have we hit the goldilocks scenario with the economy neither too hot nor too cold, but just right?
The issue here is that FX and stock market measures of volatility have slumped and are now back to pre-Covid levels, although bond volatility is still elevated even with a recent fall. The Vix is back below its long-term average. If we look in FX and EUR/GBP as an example, one month measures of price movement are near their lows and one-year implied volatility near multi-year lows.
Chart of the Day – EUR/CHF sitting on support
Talking of low volatility, EUR/CHF is a pair not known for huge intraday moves with the SNB policy stance sensitive to the ECB’s. Indeed, prices have been chopping sideways for a few months in a couple of zones either side of the 50% retrace level of the April 2019 / May 2020 high/low move. More recently, there’s a been a series of lower highs but support around 1.0930 has remained very solid. If we drop again into another trading zone, the next Fib level resides at 1.0874 with the 200-day SMA just below. Resistance above comes in at the 100-day SMA around 1.0962 with the top of the recent range around 1.10.
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