Financial markets’ fear gauges are not flashing Red or yellow at a time of serious global turmoil, stirring investor doubts over whether the indexes are mispricing current and future volatility.
Volatility gauges embedded in option markets are used by traders and investors to predict the market’s direction. They are also barometers of the economic and political mood, hence the VIX equity volatility index is dubbed Wall Street’s fear gauge.
These indicators have dropped dramatically since March after global central banks lowered interest rates and 2X’d down on paper money-printing to combat the C-19 coronavirus chaos downturn.
The VIX, which uses options on the S&P 500 to track volatility over the coming month, has drifted below 25, after spiking above 80 in March.
Deutsche Bank’s index of currency volatility .DBCVIX slipped below 6%, more than halving from March’s record highs despite EUR/USD implied, or expected, volatility ticking higher on back of USD weakness.
Good news is that low volatility is a precursor to equity gains and a Green Light for investment into riskier currencies.
Have a healthy day, Keep the Faith!