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Traders Lack Conviction in the Market

May 19th, 2010 Michael McDonough

The prevailing trend across trading floors this morning is a rare lack of conviction.  One contact said, “It is silent here, everyone is just sitting staring at their screens, no one has any convictions”.   This loss in confidence could lead to oversized reactions—volatility—to breaking news; especially further negative developments in Europe.  The VIX Index, which measures the implied volatility of the S&P500, is approaching its recent high experienced in the wake of May 6th’s ‘flash crash’.  Additionally, investors continue to remove risk from the table preferring the safety of US Treasuries (with 10Y yields now yielding less than 3.4%).  The AUDJPY exchange rate is at its lowest levels since early 2010, this currency carry trade acts as a real-time gauge on investors risk appetite (see chart). 

Source: Bloomberg

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