Month: August 2016

The graph takes a month-by-month look at EUR/JPY since 1999 (seven years total), which encapsulates the time since the launch of the year, an important watershed moment in the forex market. Each bar indicates the net up month to down month reading. For example, a reading of +5 indicates that there were 6 up years for that month as opposed to just one down year, out of the seven.

The really interesting month is December. The market rose every year from 2000 to 2004. Even though it fell in 2005, the cross has averaged a 350+ pip increase each year.

The graph takes a month-by-month look at GBP/USD since 1999 (seven years total), which encapsulates the time since the launch of the year, an important watershed moment in the forex market. Each bar indicates the net up month to down month reading. For example, a reading of +5 indicates that there were 6 up years for that month as opposed to just one down year, out of the seven.

The graph takes a month-by-month look at USD/JPY since 1999 (seven years total), which encapsulates the time since the launch of the year, an important watershed moment in the forex market. Each bar indicates the net up month to down month reading. For example, a reading of +5 indicates that there were 6 up years for that month as opposed to just one down year, out of the seven.

The prime example is August, the month in which the market has been down every year since 1999. During that time, USD/JPY fell for the month at least 137 pips each time around, with most of the declines coming in at better than 200 pips. The average has been 320 pips, which is 2.80%.

The graph takes a month-by-month look at USD/CHF since 1999 (seven years total), which encapsulates the time since the launch of the year, an important watershed moment in the forex market. Each bar indicates the net up month to down month reading. For example, a reading of +5 indicates that there were 6 up years for that month as opposed to just one down year, out of the seven.

Source: Artemis Capital Management

The calm in volatility markets (realized and implied) since implementation of the recent wave of global stimulus has been nothing short of incredible.

The microstructure of daily VIX movement (defined as minute-by-minute vol-of-vol annualized) has fallen dramatically since implementation of the ECB’s LTRO program. Volatility-of-volatility microstructure is now calmer than at any point over the past six years of data.

The VIX index registered the lowest intra-day movement in history on January 11 with a daily high-low range of only 1.14%. The S&P 500 index has gained or lost only 0.46% a day in 2012 compared to 1.04% in 2011 representing the biggest reduction in eight decades going back to 1934 (shortly after Roosevelt devalued the dollar to end the Great Depression).

Volatility markets are simultaneously calm on the surface and fearful underneath. Look at volatility one way and you see nothing but complacency with five year lows in the VIX index, but look at it from a slightly different angle you will see a furious bull market in fear. On August 17th the VIX index fell to the lowest level since the summer of 2007 generating significant media attention. Every time the VIX falls into the low-teens you get the same clichéd range of “volatility is cheap” and “now is a good time to hedge” sound bites from the financial media. Low spot-volatility does not mean cheap volatility. Volatility may be cosmetically low compared to historical averages but this ignores many important factors. For example, this past August it was more expensive to buy 1-year forward volatility with the VIX at 13.45 than it was one day after Lehman went bankrupt in September 2008 when the VIX was above 31. Think about that!