VIX index
Summary: The VIX Index, a popular measure of the stock market’s expectation of volatility and often referred to as the fear index, soared 23.55% to 25.71 (20.81 yesterday) its highest finish since May. Fears of a crackdown in China on growing concerns that the Evergrande Group, the country’s second largest property developer by sales faces a potential default. Thin liquidity exacerbated trading conditions. China was on holiday yesterday celebrating its Mid-Autumn Festival. Japan was also out, celebrating its Respect-for-the-Aged Bank Holiday. Wall Street stocks fell, with the DOW closing 1.7% lower to 33,946 (34,480). The flight-to-quality saw Treasury bond prices climb and yields tumble. The benchmark 10-year US bond yield was down 5 basis points to 1.31%. Currency markets were mixed, with the Dollar Index (USD/DXY), a measure of the Greenback’s value against a basket of 6 major currencies finishing little-changed at 93.23 (93.22). Against the haven sought Japanese Yen, the US Dollar tumbled to 109.37 from 110.00. The Greenback slid against the other haven pair the Swiss Franc (USD/CHF) to 0.9276 from 0.9322. On the other side of the spectrum risk FX fell against the US currency, with the Australian Dollar (AUD/USD) dipping to 0.7254 from 0.7263 yesterday. The US Dollar advanced 0.67% against the Canadian Loonie to 1.2812 (1.2770). Sterling (GBP/USD) tumbled to 1.3660 from 1.3730. Oil prices slid, with WTI (West Texas International) down 2.36% to USD 70.27 (USD 72.05 yesterday). The Euro edged up to finish flat at 1.1726 from 1.2724. Risk aversion saw the Emerging Market and Asian currencies lower against the Greenback. The USD/CNH (US Dollar- Offshore Chinese Yuan) jumped to 6.4830 from 6.4700. USD/SGD (Dollar – Singapore Dollar) rose to 1.3515 from 1.3481 while USD/THB (Dollar-Thai Baht) settled at 33.37, up from 33.27 yesterday.
Other global bond yields were mostly lower off the back of the US Treasuries. Germany’s 10-year Bund yield fell to -0.32% from -0.27%. Canada’s 10-year Treasury bond rate dropped 6 basis points to 1.22% (1.28%). Japan’s 10-year JGB yield was unchanged at 0.04%.
Data released yesterday saw New Zealand’s August Business NZ PSI fall to 35.6 from 57.9. UK Rightmove House Price Index in September rose m/m to 0.3% from -0.3% and y/y to 5.8% from 5.6%. Germany’s August PPI (m/m) bettered forecasts at 1.5% from 0.8%, while y/y were up to 12%, against forecasts at 9.2%. There were no other data releases yesterday.
AUD/USD – Risk aversion saw the Australian Dollar fall to an overnight and near one-month low at 0.7220 before rebounding to close at 0.7254, down from 0.7263 yesterday. The Aussie Battler managed to pare losses on short covering. The AUD/USD pair remained under pressure ahead of today’s release of the RBA’s Monetary Policy Meeting minutes.
USD/CAD – Canada’s Loonie wilted under the pressure of risk aversion, lower oil prices and the haven sought US Dollar. In choppy trade, the USD/CAD pair jumped to an overnight high at 1.2896 from its opening at 1.2770 yesterday. The Greenback then slid to settle at 1.2813.
USD/JPY – the Dollar fell against the haven sought Japanese Yen. Which was against the trend of a stronger Greenback versus the risk and EM currencies. USD/JPY settled at 109.37 from 110.00 yesterday.
EUR/USD – The Euro settled at 1.1726, virtually unchanged from 1.1724 yesterday. Overnight the shared currency slid to 1.1700, a one-month low, before rallying at the New York close. The strong rise in Germany’s August PPI report provided support for the European currency. Overnight high traded for the EUR/USD pair was at 1.1737.
On the Lookout: Today’s economic data calendar picks up while risk sentiment will remain weak in Asia. Liquidity will stay thin as China continues with its mid-Autumn festival holiday. Data released today kicked off with New Zealand’s Westpac Consumer Sentiment which eased to 102.7 from 107.1. New Zealand’s August Credit Spending follows (y/y no forecast, previous was 6.9%). Australia sees the release of the RBA’s latest monetary policy meeting minutes (11.30 am Sydney). Switzerland kicks off Europe with its August Trade Balance (f/c +CHF 4.5 billion from previous +CHF 5.25 billion). The UK follows with its Public Sector Net Borrowing (f/c GBP 15.2 billion from previous GBP 10.4 billion) – ACY Finlogix. Canada releases its August New Housing Price Index (m/m no f/c, previous was 0.4%, y/y no f/c, previous was 11.9%). The US rounds up the day’s reports with its August Current Account (f/c -USD 191.2 billion from previous -USD 195.7 billion – ACY Finlogix). US August Housing Starts (f/c 1.56 million from 1.534 million) and August Building Permits (f/c 1.6 million from 1.630 million) round up the day’s report. The US Johnson Redbook Sales Index round up the day’s reports (no f/c, previous was 15.3%).
Trading Perspective: Traditionally September in the FX markets are the busiest and most volatile. That’s when the Northern hemisphere summer ends and big businesses return to work. This year, despite Covid, is no different. The VIX Index, which measures expectations of volatility in the equity markets soared to its highest level in 4 months. While the Dollar Index (USD/DXY) finished flat, the Greenback had varying fortunes against its Rivals. Haven currencies like the Yen and Swiss Franc rallied, the Euro was little changed, and the risk associated FX, the Aussie, Canadian Dollar, and Kiwi were all lower. Asian and Emerging Market currencies were also under pressure. With China still on holiday today, contagion fears will remain on the Evergrande disarray.
AUD/USD – The Aussie still looks soft at the outset despite its rebound in late New York. The Australian Dollar tumbled to an overnight and near one-month low at 0.7220 before climbing to settle at 0.7254 (0.7263 yesterday). Meantime, the latest Commitment of Traders CFTC report saw Speculative Aussie short bets increased to -AUD 83,400 bets from last week’s -AUD 70,500. That’s huge. Immediate support for the Aussie lies at 0.7200 followed by 0.7170 and 0.7140. Immediate resistance can be found at 0.7270 (overnight high 0.7268) followed by 0.7300 and 0.7330. We could be in for some choppy trade on the Aussie given the risk off tone and the build-up of speculative shorts. Look for a likely range today of 0.7200-70. With the Aussie market short, the preference is to trade the range.
Chart
(Source: Finlogix.com)
USD/CAD – Against the Canadian Loonie, the Greenback advanced to 1.2812 at the New York close from 1.2770 yesterday. Overnight the USD/CAD pair soared to a one-month high at 1.2896. Uncertainty over the results of Canada’s Federal Election, lower oil prices and risk aversion weighed on the Loonie. For today, immediate resistance for the USD/CAD pair lies at 1.2850 and 1.2890. A sustained break above 1.2890 will see the next resistance level at 1.2925 tested (strong). Immediate support lies at 1.2780 followed by 1.2750 and 1.2720. Look for Asia to consolidate in a likely range between 1.2770-1.2870.
EUR/USD – The Euro continues to hold its own against the US Dollar in the current risk-off scenario. Overnight the Euro traded to a low at 1.1700, which is a one-month low before rebounding to finish at 1.1726, little changed from 1.1724. Overnight high traded was 1.1737. Immediate support for today lies at 1.1700 followed by 1.1670. Immediate resistance can be found at 1.1740 followed by 1.1780. Look for further consolidation in a likely range between 1.1685-1.1735 today. Prefer to sell rallies, the Euro should grind lower.
USD/JPY – Against the haven sought Yen, the US Dollar eased 0.35% to 109.37. Overnight low traded was 109.32. The Dollar recorded an overnight high at 110.04 before tumbling lower in New York. The US 10-year treasury yield fell 5 basis points to 1.31% (1.36%) on risk aversion last night. Japan’s 10-year JGB yield was flat at 0.04%. This added pressure to the USD/JPY pair. For today, immediate support lies at 109.30 followed by 109.00. Immediate resistance can be found at 109.50 followed by 109.80 and 110.10. Any further falls in the US 10-year bond yield and heightened risk-off will keep USD/JPY under pressure. Likely range today 109.10-60.
Tin helmets on, it’s going to be a roller coaster ride this week. Happy days! Happy Tuesday and trading all.
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