The start of August
The generally received wisdom is that summer is a quiet month for trading. Traders are on holiday and markets quieten down. That’s the expectation among many. However, the reality is that August can be one of the most volatile trading months of the year. According to Bloomberg’s Market’s Live blog, the Cboe volatility index has risen an average of+11% in August over the past 15 years. So, August is time of volatility. Given the unusual nature of 2020, this could be a very volatile year!
Why does volatility rise in August?
Well, volatility rises in August for the very same reason that you sometimes get large price swings on the Sunday open in FX markets. Liquidity drops, volatility rises. Liquidity is basically the presence of orders in the market: buy limits, sell limits, buy on stops and then traders placing market orders etc. The more participants, the more liquidity. However, at the Sunday open there are often less orders and so liquid is said to be ‘thin’. This lack of liquidity in the markets can result in large price jumps as the price moves into liquidity voids (areas without many orders in) and skids through.Take a look at the chart below to see the volatility increase for August.
Could this be gold’s catalyst to hit $2000?
One chart to watch carefully is the gold chart. Many analysts see a pullback for gold in the near term, but the break and close beyond the weekly resistance level last week signals at least another attempt at a run for higher prices. Whether it makes new highs this week remains to be seen. However, a move higher in gold could combine with the thin liquidity of August and have a race to $2300 on the cards sooner than anyone expected. This is one chart to be keeping a close eye on as the USD index has resumed its move lower this am.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
EUR/USD holds above 1.0650 after US data
EUR/USD retreats from session highs but manages to hold above 1.0650 in the early American session. Upbeat macroeconomic data releases from the US helps the US Dollar find a foothold and limits the pair's upside.
GBP/USD retreats toward 1.2450 on modest USD rebound
GBP/USD edges lower in the second half of the day and trades at around 1.2450. Better-than-expected Jobless Claims and Philadelphia Fed Manufacturing Index data from the US provides a support to the USD and forces the pair to stay on the back foot.
Gold is closely monitoring geopolitics
Gold trades in positive territory above $2,380 on Thursday. Although the benchmark 10-year US Treasury bond yield holds steady following upbeat US data, XAU/USD continues to stretch higher on growing fears over a deepening conflict in the Middle East.
Ripple faces significant correction as former SEC litigator says lawsuit could make it to Supreme Court
Ripple (XRP) price hovers below the key $0.50 level on Thursday after failing at another attempt to break and close above the resistance for the fourth day in a row.
Have we seen the extent of the Fed rate repricing?
Markets have been mostly consolidating recent moves into Thursday. We’ve seen some profit taking on Dollar longs and renewed demand for US equities into the dip. Whether or not this holds up is a completely different story.