Fundamental Comment

Reasons behind market volatility and chaos


The non-stop market volatility can not be ignored and probably there are various reasons causing the undergoing chaotic behavior.

The reasons could be summarized in the following points:

-The dialing back of the central bank’s flood of excess liquidity, where the announcement of end of stimulus by the ECB and expectation of rate hike tomorrow by the BOE meant other major central banks are mimicking the Fed.

-The dollar used to play contradicting roles such as safe haven and good investment opportunity given the hawkish Fed’s rate hike trajectory.

-Fed’s intention to raise interest rates while Trump’s desire to have a weaker dollar,

-The narrowing difference between the U.S. 2-year bond yield and the 10-year bond return has raised anticipation of U.S. recession, thereby raising concerns of a global recession in the coming years.

-Vagueness about the trade war winners and losers.

-Uncertainty about the global stocks outlook amid the trade tensions and downbeat earnings, especially by technology giants.

-Many investors closed their trading positions with the end of July.

-The sideway movements for the dollar, i.e. investors fail to find a clear direction.

The aforesaid reasons have resulted in very low response of charts to fundamentals and technical analysis.

For this week, many investors have preferred to remain sidelined ahead of Fed meeting, BOE rate decision and the U.S. NFP report.

Dollar index

The U.S. dollar traded slightly higher on Wednesday, with many investors preferred to remain sidelined ahead of key central bank monetary policy meetings.

The dollar index, which tracks the green currency’s movements versus a basket of major currencies, rose to 94.41 after rebounding from a low of 93.93 on Tuesday.

The high volatility in the market remained predominant due to uncertainty about global growth outlook amidst the trade tensions between the United States and its trading partners.

Trade tensions continue to be the key factor driving the market, as investors keep their eyes on any updates from the U.S. administration regarding new tariffs.

Reuters cited a source that the Trump administration intends to propose a larger 25% tariff, instead of 10 percent, on $200 billion worth of Chinese goods.

Recently, the dollar has been taking advantage of any escalation in the trade tensions, especially with China as some investors believe the U.S. would have the upper hand in the trade war.

The green currency has been playing more than a role, with some assets giving up their classic role such as yen and gold which are currently not deemed as safe havens.

For instance, European stocks are trading lower while the yen slipped for a third straight session versus the U.S. dollar.

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