Article by ForexTime

Volatility has returned to the capital markets, with the VIX rising more than 22% last week.  U.S. Q2 GDP performed better than expected, climbing a revised 4.6%. That allayed some angst in global equities, and tempered the VIX, which climbed to its highest level since mid-August. US stocks were nevertheless down sharply on the week, rattled by a number of factors, including growth uncertainties in Europe and Asia, along with Fed normalization concerns. Global bonds were mixed for the last full week of September. Volatility should remain near recent highs this week with plenty of key variables on tap.

This will be a very busy week for the markets with plenty of key data and events, including the U.S. employment report and the ECB meeting. Bonds may continue to find support from ECB president Draghi warning last week that the “risk of doing too little outweigh risks for doing too much.” While that comment and the relatively low uptake in the first TLTRO have left the door open for more stimuli the latest round of easing measures have yet to be fully implemented.

With this in mind, there is a strong likelihood that the ECB uses ongoing verbal intervention at this point, which could lead to some late week disappointment. Volatility may also remain elevated, especially as holidays in Asia over the latter half of the week will thin volume.

The VIX has retraced back to the August highs and could test the 17.50% level.  Momentum on the implied volatility index has turned positive with the MACD (moving average convergence divergence) index generating a buy signal.  This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.  The index moved from negative to positive territory confirming the buy signal on the volatility index.

Article by ForexTime

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