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VIX Index Jumps, US Dollar & Treasury Yields Spike Post-Powell

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VIX INDEX ‘FEAR-GAUGE’ RIPS HIGHER ALONGSIDE US DOLLAR & TREASURY YIELDS AFTER FED CHAIR POWELL SPEECH AT JACKSON HOLE SYMPOSIUM

  • S&P 500 VIX ‘fear-gauge’ turns sharply increased even because the inventory market hits one other file
  • The VIX Index, US Dollar, and Treasury Yields jumped after a speech from Fed Chair Powell
  • USD/JPY reversal try underway however bulls may battle to take out a key technical impediment

Federal Reserve Chair Jerome Powell seemingly had most market members sitting on the sting of their seats immediately. The headline occasion of this yr’s Jackson Gap Symposium was championed by Fed Chair Powell who delivered a speech on adjustments to the central financial institution’s financial coverage framework.

Particularly, the Fed introduced it’ll begin to use common inflation concentrating on in lieu of a symmetrical goal. Markets responded violently to the information as anticipated. Arguably one of the notable reactions throughout Thursday’s trading session is the sharp rally staged by the VIX Index.

VIX INDEX PRICE CHART WITH US DOLLAR OVERLAID: 1-HOUR TIME FRAME (31 JUL TO 27 AUG 2020)

VIX Index Price Chart US Dollar Powell Speech Fed Jackson Hole Symposium

Chart created by @RichDvorakFX with TradingView

Plainly the VIX Index ‘fear-gauge’ is on the rise with investor demand for draw back safety as main inventory market indices, just like the S&P 500 or Nasdaq, notch consecutive file highs. Month finish rebalancing on deck and the opportunity of hurricanes souring market sentiment might maybe clarify the spike increased in anticipated fairness volatility as nicely.

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Additionally noteworthy, further-out VIX Index futures contracts, such because the October VIX and November VIX, are trading significantly increased than the front-month VIX. This creates potential for convergence, which stands out as a risk that may undermine the relentless danger rally serving to ship shares to all-time highs. On the identical time, in consideration of its posturing as a prime safe-haven currency, the broader US Dollar seemingly stands to maneuver in tandem with the VIX Index.

USD/JPY PRICE CHART: DAILY TIME FRAME (25 MAY TO 27 AUG 2020)

USDJPY Price Chart US Dollar Technical Outlook

US Dollar energy on Thursday was largely mirrored by spot USD/JPY worth motion. The Dollar-Yen is now trading comfortably above its 8-day transferring common because of a bullish engulfing candle simply printed by the main FX pair. USD/JPY upward momentum has additionally gained tempo over the prior three classes as indicated by the MACD. In the meantime, the relative energy index is pointing increased because the broader US Dollar makes an attempt to construct a base and rebound off two-year lows. With the 38.2% Fibonacci retracement stage of June to July’s bearish leg within the rearview, this zone of technical confluence may present some assist to identify costs going ahead.

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Clearing the 100-day transferring common could possibly be troublesome for USD/JPY bulls to surmount, nonetheless, with the 107.00-level standing out as an space of technical resistance that might stymie a strengthening Dollar. That stated, the broader development of USD/JPY worth motion appears to be like clouded total. That is because of the Dollar-Yen coiling like a tightly wound spring between decrease highs on 30 June and 13 August whereas forming a string of consecutive increased lows since 31 July.

USD/JPY PRICE CHART WITH TEN-YEAR TREASURY YIELD OVERLAID: 4-HOUR TIME FRAME (28 MAY TO 27 AUG 2020)

USD to Yen Price Chart US Dollar Outlook Treasury Yields Fed Powell Speech Jackson Hole

Chart created by @RichDvorakFX with TradingView

In mild of total blended technical readings, the route of US Treasury Yields might function a attainable bellwether to the place the Dollar-Yen heads subsequent. Spot USD/JPY worth motion tends to carry a robust direct relationship with Ten-Yr Treasury Yields as indicated within the chart above.

USD/JPY BEARISH

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of purchasers are web lengthy. of purchasers are web brief.

Change in Longs Shorts OI
Each day -10% -19% -14%
Weekly -16% -18% -17%

Additional, the newest IG Consumer Sentiment readings might make clear the place USD/JPY is perhaps headed as nicely. I talk about utilizing the IG Consumer Sentiment Report as a trading instrument and canopy extra particulars for USD/JPY worth outlook within the webinar video archived together with this evaluation.

Maintain Studying – US Dollar Value Motion: USD Bears Whiplashed by Dollar Reversal

— Written by Wealthy Dvorak, Analyst for DailyFX.com

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