Summary:
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US indices remain indecisive
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US500 not far from record peak but pauses on EM concerns
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VOLX hits highest level in a month
It’s been an intriguing few days of trade for US indices with the large-cap benchmarks seemingly caught between making another push higher into uncharted territory and pulling back on the growing concerns regarding contagion from the Turkish crisis. The last 4 daily candles have all seen red closes, but it should be noted that the last 2 days in particular have seen the market end off its lows and exhibit a lower wick. Yesterday saw a strong move higher at the start of the US session but the rally fizzled out and faded and the price action remains far from certain.
The US500 has pulled back in recent sessions and price now looks a little uncertain as to where it wants to go next. This can be seen by the market currently residing in between the 8 and 21 EMAs with the latest push higher from the start of July is now in danger of seeing price turn lower. Source: xStation
The situation in Turkey appears to have calmed a little today, with president Erdogan addressing the nation in Ankara. Erdogan called on a united front from Turkey and also asked citizens to refrain from buying US electrical products in an apparent attempt at striking back at the country in the wake of recent sanctions. However, these measures seem to follow the calls last week for citizens to change and foreign FX holdings into Turkish Lira in that it is highly likely to be ineffective in the grand scheme of things. The rout on the Lira has eased a little today with the USDTRY back near the levels that it ended last week, but unfortunately this seems at present as unlikely to mark a high-water mark in the crisis with a reluctance to take more decisive action greatly increasing the chances that things get a whole lot worse before they improve.
Should the US indices grow more sensitive to the developments in Turkey, and the developments themselves intensify, then one market which could exhibit a sharp move is the volatility index (VOLX on xStation). This index is often referred to as a gauge of fear and earlier this year we witnessed one of the largest ever jumps in its price when markets cratered following a rapid rise in fears of higher US inflation. There has been a pretty steady move higher in the market in the past few sessions, with price coming back to the 15 level and reaching its highest in a month. This remains a far cry from the 29 seen back in February however, and if things do escalate further as far as EM fears are concerned then we could be in for another sharp leg higher.
The volatility index (VOLX on xStation) has reached its highest level in a month due to the situation in Turkey. However, it remains far lower than at times of previous market panics. Source: xStation
