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 strain persists and drives the DXY Index to a recent twelve-week low
- VIX Index plunges into the 25-handle as investor threat 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 during the last a number of buying and selling session. US Greenback draw back seems fueled by many basic forces, however unprecedented Fed motion and the lasting wave of coronavirus optimism stand out as main drivers.
Largely because of the FOMC backstop and coordinated measures by the Fed with different international central banks to ease USD funding strain, dealer sentiment has improved remarkably. Urge for food for threat has flourished and demand for safe-haven belongings has evaporated in flip.
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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 2.5% on steadiness during the last eight 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. 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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Because the US Greenback and VIX Index largely full the retracement of their explosive transfer increased recorded earlier this yr, and shares broadly rebounding from the coronavirus-induced market panic mid-March, 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 may be potential for the broader US Greenback to start out looking for a base after hemorrhaging towards key friends. Additional, the current escalation in China pressure nonetheless lingers as a significant risk that might trigger market sentiment to deteriorate and supply assist to the US Greenback.
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There may be additionally the excellent threat that investor complacency exacerbated the most recent transfer increased in shares and decrease in safe-haven currencies just like the US Greenback. This might shortly unwind, and switch the ‘V-shape’ restoration right into a ‘W-shape’ restoration, notably seeing that shares face peril as day of reckoning looms.
— Written by Wealthy Dvorak, Analyst for DailyFX.com
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