VIX (NYSEArca:VXX) Marks 10 yr Lows

VIX (NYSEArca:VXX) Marks 10 yr Lows

VIX (NYSEArca:VXX) Marks 10 yr Lows


After returning from the long May Day weekend, equity investors look undecided on whether to be Bullish or Bearish.

Stocks across Asian markets were mixed Tuesday despite the CBOE Volatility Index (VIX), Wall Street’s ‘Fear Factor’  hitting its lowest marks in a decade.

The low volatility was reflected in currency markets with the EUR, GBP, and the JPY stuck in tight trading Vs USD.

The Reserve Bank of Australia (RBA) kept interest rates steady at 1.5% as widely anticipated, but the positive tone on the labor market outlook pushed the Aussie (AUD) 0.2% higher Vs USD.

Australia’s central bank now expects unemployment to decline gradually over time, and inflation to increase as the economy continues to strengthen.

The biggest Australian concern now is likely to remain the overheated housing market despite price growth slowing slightly in April.

For traders who like high yielding currencies, it will be Key to monitor the differentials in government bond yields. Spreads between US and Australian 10-yr bond yields are currently below 30 basis points, and without sufficient premium, it will be hard for AUD/USD to resume its rally. It will require somewhere around 50-60 basis points premium for AUD/USD to break above Y 2017 highs.

The US Fed kicks off its 2-day monetary policy meeting Tuesday with an announcement due Wednesday afternoon. No one expects any changes to policy, though it official statement will probably provide some direction to the USD.

US hard and soft economic data released has not been encouraging lately.

Last Friday’s GDP did not reflect the upbeat PMI reports with the economy growing 0.7% in Q-1 of Y  2017. Consumers pulled back on spending, and US employers added far fewer jobs than expected in March.

The Big Q’s:

  1. Will the Fed acknowledge a slowdown in growth and push rate hike expectations lower for 2017?
  2. Or are these factors only a temporary drag affected by the Easter bank holiday weekend and a delay in tax refunds, which is likely to be reversed in Q-2?

The Fed’s statement should be answering these questions, and based on that, traders will act.

In Europe, investors will take cues from the final PMI numbers from Spain, Italy, France and Germany.

HeffX-LTN Analysis for VXX Overall Short Intermediate Long
Bearish (-0.31) Bearish (-0.27) Bearish (-0.35) Bearish (-0.29)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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