The volatility in US stocks has fallen to the lowest levels in two decades. The lack of direction, hence the absence of conviction, holds investors back from stepping into fresh positions in the US and elsewhere in the globe.

The currency and equity markets are trading in a hectic fashion, as the Jackson Hole symposium kicks off today. The markets will be seeking direction from FOMC Chair Janet Yellen’s speech due on Friday.

All markets are extremely sensitive to information, as speculators are readjusting their positioning back and forth on the smallest piece of news, comments or data regarding the US economy, the Fed and its monetary policy toolkit.

The expectation that Janet Yellen would let out a valuable hint is very high. Therefore any comment from Yellen could be over-interpreted, overrated and could cause dramatic two-sided market volatility before the weekly closing bell.

As Janet Yellen’s speech is the major factor driving the cross asset markets, the event risk is high and difficult to diversify. Even the flight to safety is risky, as any massive move, dovish or hawkish, could have an undesired impact on the volatility in the safe haven assets.

High US sensitivity in yen and gold

Gold broke below its 50-day moving average for the first time in two months. After having hit a two-and-a-half year high in July, the SPDR Gold Trust retreated by 3%, showing that the safe haven characteristic of the gold has been totally wiped out by its increased sensitivity to the US dollar and the US yields. Fed market speculations will likely give a fresh swing to the short-term trend in gold. An improvement in the US treasury yields could trigger further traffic from gold to treasury holdings and pressure the price of an ounce towards the $1300 level. In contrary, any dovishness from Janet Yellen’s Jackson Hole speech could send gold back above its 50-day moving average for a recovery towards $1355/1375.

Anxiety best describes the current sentiment in Japan. Nikkei stocks rallied in the early Tokyo trading session, yet failed to consolidate gains. Nikkei closed the session 0.31% lower.

The uncertainty in the US dollar is tainted on the yen, which is heavily impacted by the Fed expectations. In turn, the lack of visibility in the yen is heavily impacting the appetite in the Japanese equity markets. USDJPY is stuck within a tight range around the 100 level. The inability to step out of the 100-hold would only keep Japan in a thick cloud of ambiguity.

Written by Ipek Ozkardeskaya from London Capital Group