Whilst US equity markets have rushed to embrace a Biden win with frothing enthusiasm, the same could not be said of currencies or the VIX which are taking a more considered approach, and perhaps signaling the euphoria is likely to be short live and like a souffle could collapse at any time.
And the reason we only have to look at the daily chart for the Aussie yen, a classic proxy for risk to see this in sharp relief, with yesterday’s price move higher restricted to an underwhelming 20 pips, and sandwiched in a long-legged Doji candle under extreme volume reinforcing both a lack of enthusiasm. and indecision. Under normal circumstances, one would expect to see the yen selling strongly in evidence. We are not. The same appears to be the case in early trading today as the US indices are once again rising sharply on Globex as Biden creeps towards the finishing line against a background of legal challenges which will no doubt trigger an extended period of volatility.
The same narrative can also be applied equally to the VIX which continues to remain elevated, and whilst it moved firmly lower yesterday, trading at 29.57 this level would be still be considered out of balance with risk, yet this is where it has been trading for the last few weeks in a bullish market. One reason is that market participants are buying volatility on the expectation of a protracted battle through the courts before a clear winner is announced in the US election.
The question then becomes, how to make sense of these anomalies, and the answer is to use volume price analysis as volume reveals the truth behind the price action, and when US equities climb on low or average volume you can be assured the froth of your morning cappuccino is about to be blown away.