FX Evolution: Is Something Broken Again in The World Markets?

Worried about the markets? One measure of market fear says you shouldn’t be. That measure is the volatility index, or VIX. It’s recently slid to a new post-pandemic-era low.

That could be a sign of the market’s resilience. However, drops to lows have typically been short-lived. Volatility is prone to spiking higher. What the VIX may really be warning about right now is market complacency.

The last time the VIX was near a low was back in March, before two bank failures led to a massive jump higher. That took months to settle back down.

Traders could be in for that kind of move again. The question is where that could come from.

One potential area is in the oil market. Oil prices have moved over $90 in recent sessions. Some traders see oil moving to $100 per barrel. Either way, the higher energy costs are, the less money there is for consumers to spend elsewhere.

Another potential danger is in rising interest rates. Treasury bonds saw a brief spike higher in rates last week. While the market has adjusted to the Fed’s rate hikes over the past 18 months, any vulnerability there could quickly ripple through the economic system.

If something is broken or breaking in global markets, investors may want to take their speculative trades off the table. And potentially hedge with put options or covered call options on existing positions.

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