We have been writing about the recent weakness in the Emerging Markets space, and that poor momentum in the EM could be an early warning signal to recent global bullish sentiment.
The EM ETF, EEM US, drops below the 200-day average today and is flirting with the huge 42 level. Watch this carefully here.
JPM EM FX index trades very weak today. Note this is one of the bigger moves down in a while. Not great looking as the index dives below the 200-day average.
It was not long-ago investors bought protection in panic. Nobody has missed the recent implosion of index volatilities across the globe. Anything with theta decay has been sold, including the Emerging markets space protection.
VXEEM index is down to rather “low” levels. Given the fact the USD has moved so much lately as well as the EEM trading this poorly, VXEEM surely looks to be setting up to become an attractive hedge.
The USD does matter. The below chart shows the EEM US (orange) versus the DXY index (white inverted). Do not underestimate big moves in the USD spilling over globally.
Source, Charts by Bloomberg