Volatility takes centre stage - Market Overview

Volatility takes centre stage - Market Overview

Yesterday, volatility was the protagonist in a market dominated by fears surrounding the delta variant of the coronavirus, plus Fed's announcement regarding adjustments to monetary policies.

VIX, the benchmark for the S&P500 index, experienced a notable rise, reaching the highest levels in a month.

Another significant influence in the markets was Goldman Sachs’ report, which cut its outlook on US GDP for the third quarter to 5.5% from 8.5% previously, citing delta’s growing impact.

The most worrying part of this pessimistic forecast might come when the market has already weighed in Fed's newest monetary policies as early as the last quarter of this year.

As we learned yesterday from Fed’s minutes, most of the committee members believe the US economy is evolving at a healthy enough pace to justify reducing the monthly bond purchases by $120 billion.

Impact on stocks, commodities, forex

European equities suffered falls, while US stocks experienced abrupt movements up and down. After starting the trading day with large drops, North American equities rebounded at the end of the session, primarily driven by stocks such as Cisco and Nvidia, which released better-than-expected earnings results.

But the biggest move was in the commodity and forex markets. Generalized falls were seen in commodities due to worsening expectations of global demand, which dragged oil and copper down. The latter broke the neckline of a broad Head and Shoulders pattern, potentially anticipating further falls. This brought with it the collapse of commodity-correlated currencies such as the Australian Dollar and the Canadian Dollar.

The CAD/JPY pair, pressed by the Canadian Dollar’s weakness and the yen’s strength, was about to pierce the neckline of a Head and Shoulders pattern. If confirmed with a daily close below the 85.50 zone, it would technically anticipate a theoretical projection to levels around 80.00.

Sources: Bloomberg, reuters.com.

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