Markets: Dollar Keeps Rising + High Volatility

by Francesco Placci

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Among the markets that have shown greater strength in recent days are the energy sector, with Heating Oil up almost 24%, and Cotton, which continues its upward trend. 

The situation improves for the bond sector, which shows returns close to zero and therefore better than the losses recorded in recent weeks. However, bonds remain one of the weakest markets together with cryptocurrencies and equity indexes.

To learn more about how the markets are moving and the volatility trend, don't miss our weekly overview!

Enjoy the video!

 

Transcription

Hey everyone, welcome back! One of the coaches of Unger Academy here, and this is our usual chat we have on weekends to review market trends over the last week.

Okay. So let's start as usual with the stock markets. By looking at this chart we can see that the Nasdaq is currently at important lows. We are at a support level that seems to be holding, at least for now. But this is definitely something that should be monitored.

The stock index trend is negative for now. Slightly negative compared to the values of a week ago. However volatility remains quite high in the long term. We're seeing a rise in volatility even in the short term, and the percentile values on a time horizon of one year are certainly very high.

Let's move on to the bonds. Let's take a look at the T-Bond chart, namely the 30-year U.S. bond, which this week shows returns that are very close to zero, and the same goes for all U.S. and European bond futures.

It isn't a particularly significant return, however, it's quite important to see a stop to the free fall that has been characterizing this market for several months now.

On the other hand, the energy market is still very dynamic. In particular, this week we have Heating Oil that is up by +23.9% at the moment. It is on incredible highs, especially if we compare it with the past. Just think that during the worst Covid period we even had negative prices. Crazy.

So this week, this market is certainly the strongest among all the various sectors. Moreover, also Natural Gas, RB (that is to say gasoline) and Crude Oil are all at very important levels, which are also giving the economic sector many problems.

Metals, as usual, are quite weak. For several months now they have shown no signs of trend and despite the fact that the current period is certainly quite problematic from an economic standpoint, of course I'm referring to the Russian-Ukrainian war, the cost of energy, and the rise in U.S. rates, these metals don't appear to be the safe-haven asset that they're usually considered to be.

We also have weak meat markets this week. Lean Hogs losing 8%. Live Cattle and Feeder Cattle are also down.

Instead, as far as Soft commodities are concerned, we're seeing an explosive trend in Cotton which continues its bullish trend. Let's take a longer-term look. This is the trend of Cotton, certainly one of the most volatile markets of the moment.

Let's turn to the Cereals, there was a sharp rise in Bean Oil, which also reached all-time highs. More contained, instead, are the increases in other grains. This week Corn rose by 3.25%. Wheat, on the other hand, is at a standstill, although we know it's at very high levels.

Let's also take a look at the currency market, which has certainly moved quite a bit for being a market that usually shows lower volatility than others. In particular, let's take a look at the Euro-Dollar, which is currently trading at 1.0544. That's a trend of almost +2.5% in a week, which is truly remarkable. And the US dollar continues to strengthen against all other currencies.

Finally, there's little to report as to cryptocurrencies. Bitcoin is down -1.26%, remaining within this trading range, in the lower part right now. We're also seeing a support that we hope will hold and give new energy to this market that at the moment is one of the weakest, together with the stock markets and bond markets.

Finally, let’s have a look also at the term structure of implied volatility as measured on the SPX volatility indexes. We can see the first hint of backwardation.

It's a signal of the potential danger that hasn't materialized yet because, all things considered, although implied volatility is on the rise, there is no panic in the markets.

However, the Vix value is quite high compared to the values reached in the last months. This situation must be closely monitored, because when the term structure goes into full backwardation, and we aren't there yet, it's a quite strong signal that there are big turbulences in the markets.

The rollover calendar. After the many rollovers of this week, we don't have anything scheduled for next week. The first rollover in order of expiration will be the Vix Future scheduled on May 11.

Alright. Hey guys, before saying goodbye, I’d like to leave you with some advice. If there is someone among you who's interested in understanding something more about systematic trading, please go and click on the link in the description below. You’ll find a video of Andrea Unger introducing you to his method, which has allowed him to obtain incredible results in this field winning the World Cup Trading Championships with real money 4 times. You'll also be able to get a free copy of his best seller "The Unger Method" by paying only the shipping costs or even book a free strategic call with one of our tutors.

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And with that, this video is over! I wish you a great weekend ahead and will see you next week! Bye-bye!

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Francesco Placci

Hi, I'm Francesco Placci, a professional trader since 2005 thanks to the systematic approach to the markets.

My skills range from trading on index futures to bonds, from stocks to commodities, with a particular focus on volatility and options, which I consider to be among the most versatile and fascinating instruments available to traders.

After an experience with leading Italian credit institutions where I learned the basics of institutional finance, I became a successful independent trader, with great personal satisfaction.

Founder of Algoritmica.pro, in 2019 I joined Unger Academy as head of Research and Development.