US DOLLAR INDEX CRUMBLES AS STOCKS SURGE & VOLATILITY PLUMMETS THANKS TO FED-FUELED MARKET RECOVERYUS Greenback promoting str
US DOLLAR INDEX CRUMBLES AS STOCKS SURGE & VOLATILITY PLUMMETS THANKS TO FED-FUELED MARKET RECOVERY
- US Greenback promoting stress persists and drives the DXY Index to a recent twelve-week low
- VIX Index plunges into the 25-handle and under its 200-DMA as investor danger urge for food crushes volatility
- Nasdaq pierces its all-time excessive because the inventory market completes a V-shape restoration largely because of the Fed
The US Greenback has slid decrease steadily over the past a number of buying and selling session. US Greenback draw back seems fueled by many basic forces, like the newest ECB response weighing positively on EUR/USD, however unprecedented Fed motion and the lasting wave of coronavirus optimism stand out as major drivers.
Largely because of the FOMC backstop, and coordinated measures by the Fed with different international central banks to ease US Greenback funding stress, dealer sentiment has improved remarkably. As such, urge for food for danger has flourished and demand for safe-haven property has evaporated.
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US DOLLAR & VIX INDEX PRICE CHART: 4-HOUR TIME FRAME (23 APRIL TO 03 JUN 2020)
Chart created by @RichDvorakFX with TradingView
Correspondingly, the broader DXY Index has crumbled to a recent twelve-week low after plunging abuout 3.0% on stability over the past 9 buying and selling classes. In the meantime, as enhancing market sentiment crushes volatility, the VIX Index, or ‘fear-gauge,’ has plummeted to its weakest degree since February and under its 200-day shifting common. Although the 40% surge recorded by the Nasdaq off its 23 March low, which catapulted the tech-heavy inventory market index to its all-time excessive on the 9,700-price degree, arguably stands out as most pronounced.
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With the US Greenback and VIX Index largely finishing the retracement of their explosive strikes larger earlier this yr, and shares broadly rebounding from the coronavirus-induced market panic, the Federal Reserve, championed by Fed Chair Powell, can now take a victory lap because the Nasdaq achieves its V-shape restoration.
DXY INDEX, NASDAQ COMPOSITE, SPOT AUD/USD PRICE CHART: DAILY TIME FRAME (30 DEC 2019 TO 03 JUN 2020)
Chart created by @RichDvorakFX with TradingView
That mentioned, with bonds beginning to bleed decrease whereas the 10-year Treasury yield spikes above the 0.75% mark, there’s potential for the broader US Greenback to begin trying to find a base after hemorrhaging towards key friends, significantly if rallying yield on Treasuries can outpace EU authorities debt like German Bunds or Italian BTPs. Additional, the current escalation in China rigidity nonetheless lingers as a significant risk, which may trigger market sentiment to deteriorate and supply help to the US Greenback.
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There’s additionally the excellent danger that investor complacency exacerbated the newest transfer larger in shares and decrease in safe-haven currencies just like the US Greenback. This might rapidly unwind, and switch the ‘V-shape’ restoration right into a ‘W-shape’ restoration, significantly seeing that shares face peril as day of reckoning looms.
— Written by Wealthy Dvorak, Analyst for DailyFX.com
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