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VIX Climbs as Oil and Currency Markets Generate Disurptions

David Becker
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VIX Climbs as Oil and Currency Markets Generate Disurptions

US stocks have been extremely volatile in the first couple of weeks of the New Year. Whipsaw choppy trading has been a function of the recent catalysts which have generated fear and uncertainty in the capital markets structure. Falling oil prices as well as a disruptive currency market has pushed volatility to 2015 highs, making it difficult for a trend to stay in place.

During the first couple of weeks of the New Year, equity traders have faced choppy markets, with the Dow Industrial Average experiencing triple digit moves near every day in 2015. Volatility has become the new normal as falling oil prices along with a stronger than expected dollar has trumped earnings. The VIX index which measures volatility has climbed more than 20% so far in 2015.

On Thursday the currency markets where shocked when The Swiss central bank scrapped its minimum exchange rate of CHF 1.20 per euro, which had been in place since 2011. At the same time the rate on sight deposits was cut by 50 basis points to -0.75% from -0.25% previously and the target range for the three month Libor was cut to -1.25% to -0.25% from -0.75% to 0.25%. The SNB said in a statement that while the Swiss franc is still high, the overvaluation has decrease as a whole since the introduction of the minimum exchange rate.

Oil prices have also had a negative impact on the broader market and the positive effect of lowering expenses has yet to translate into stronger retail sales. Crude oil prices have tumbled $60 dollar per barrel on a WTI basis in the past 7-months, while gasoline prices at the pump have declined nearly 35%. The decline in gasoline should put nearly $1,000 into the average Americans pocket over the course of the year, which in turn should buoy retailors. Although the holiday season was positive, the benefit generated by falling gasoline prices has yet to come to fruition.

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FXCM 1.13943/1.13912 3.1