VIX Highest in 3 Weeks on Concerns Over Cooling Economy

Despite a lack of news on Thursday, equity markets in the EU and US closed in negative territory over growth concerns and that the amount of tools from the Central Banks are becoming more and more limited. The minutes from the ECB March meeting showed a majority of the Governing Council agreed on additional stimulus to the economy in order to achieve the desired monetary policy targets. EURUSD printed new 2016 highs at 1.1454 in the morning session after taking out the NFP-highs, but the pair has been trading sideways since April 1st and has posted five dojis in a row. Risk aversion in yesterday’s session also sent the Japanese JPY on the bid and USDJPY to lowest levels since October 2014 at 107.66, but this has cooled off this morning and the pair is trading back above 108. Oil markets traded sideways yesterday, but has this morning enjoyed the positive momentum in risky assets from Asia. Interest rate futures have sent yields slightly higher in the US overnight, while Europe is unchanged.

The positive sentiment in Asia has continued in the early EU session, where decent German Trade Balance figures added to the positive mood. Switzerland saw a slight increase in the seasonally adjusted Unemployment Rate to 3.5% from 3.4%, but this was expected by analysts and the market reaction has been muted. Swiss CPI came as expected as well at 0.3%/-0.9% MoM/YoY, so whereas the monthly figure is showing a slight pick-up, the yearly still is in deflation-mode. CHF-pairs have after the Black Thursday in 2015 not been behaving as before the removal of the EURCHF peg and volatility has more or less been taken out of the currency.

The UK is under pressure from external reports (Barclays, Moody’s) which are painting a dark picture of the UK economy, should we see a Brexit on June 23rd. UK February macro data this morning revealed a cooling in the industrial and manufacturing production as well as a disappointment in the trade balance. The Sterling has been in an overall downtrend since mid-2015 and Cable printing lowest levels since 2009 earlier this year is still subject to continued selling interest. We expect volatility to pick up massively ahead of the UK Referendum and would see if there would be good opportunities in the Options-market (can be traded via Tier1FX as well.)

Later today, Canadian figures will take center stage. At 1415CET, the Housing Starts for March will be released and markets are expecting a drop to 190k from 212.6k. With the upside surprise recently in the Building Permits, we could see a slight improvement in the Housing Starts as well. At 1430CET, the Canadian Employment report for March is released. Unemployment is expected to come out unchanged at 7.3%, but should we see a positive surprise, we will go long the CAD and have generally maintained our buy on dips stance.

Have a nice weekend.

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