For major US indices and indeed the European bourses, last week was another which saw risk on sentiment return as the markets become ever more inured to the war of words from North Korea, and with a direct inverse correlation between the rising number of events and consequent and failure to impact on the market. All of this is, of course, reflected in the VIX, the ultimate barometer of risk sentiment, and with the US indices continuing their inexorable rise ever higher, so the VIX has continued to plumb the lower depths of the daily chart once again and closed last week on the cash market at 10.17.
From a technical perspective the index is once again testing support in the 10 region, and should this be breached then we will see the VIX back into single figures, which will no doubt trigger the call for the Big Short and to suggest the end is nigh for the current bull market run. This seems unlikely in the short term given the technical picture for the primary indices which continue to move higher and breaking out into new high ground, and this return to risk on sentiment was strongly reflected in the Japanese yen which continued to sell heavily as safe haven flows moved strongly out of the currency and into riskier assets. And what we also have to remember is the extent to which market complacency can run if the VIX does indeed manage to trade in single figures.
By Anna Coulling