Market overview for October 8 – October 12 2018: Currency indexes show numerous abrupt jumps and drops, pushing median volatility levels above the past month's readings. Weekly correlation distributions show extensions of the monthly patterns.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
The past week was marked by abrupt, zigzagging changes of the observed currency indexes. The general developments were governed non-macroeconomic issues, with the safe-haven Yen's measure touching the +1.50% line, and the oil-price-dependent Loonie's gauge nearly breaking below the -1.50% mark.
{ATTACHMENT}North America: USD, CAD
The US Dollar's index eased off its two-week uptrend and posted a moderate 0.46% loss. However, after two periods of strong performance, the result had little effect on the long-term readings.
The Greenback's measure peaked to its period's high of +0.25% at Tuesday noon, and spent the next two and a half days sliding down to the -0.75% line. The gauge changed direction on Friday and proceeded to edge up throughout the day, but still failed to overtake its closest peer, the Swiss Franc's index.
Meanwhile, after four periods of positive results, the Canadian Dollar's measure became the worst performer, posting its greatest weekly loss since March 16. The throwback caused the gauge's YTD change to fall back into the negative territory after only two weeks of reporting long-term growth.
The CAD Index slid below the baseline in the beginning of the week along with the Euro's and the Pound's measures, and settled near the -0.25% line. It held the level until Wednesday afternoon, when the combined effect of falling oil prices and plunging risk sentiment pushed the gauge down. The index lost around 1.10 pp by early Thursday and spent the day zigzagging from -1.25% to -1.50%, caught between its peers' moves and oil price developments. Later in the day it settled just above the -1.50% mark, and Friday saw the index turn to recovery, which allowed it to cut its losses by the -1.25% line.
{ATTACHMENT}Europe: EUR, GBP, CHF
The observed European currencies showed notable unanimity as their measures moved in unison for most of the week. The Pound's and the Euro's measures started off by dropping below the baseline, as the former was coming off the highs reached at the back of the Brexit headlines on previous Friday, and the latter was weighted by the tensions within the EU, with the Italian officials stating that the budget proposal would not be changed despite the disapproval from their fellow member states. Additional pressure came from the overall risk-off mood, and as the Yen's measure skyrocketed, the EUR and the CHF Indexes settled near the -0.40% and -0.10% lines, respectively, while the Pound's gauge mirrored the ark formed by its Canadian counterpart.
On Tuesday, the Euro's and the Franc's measures lost more points and came to the -0.50% and -0.25% marks, but the GBP Index was pushed and pulled by Brexit news. At the start of the European trading, the Pound's gauge lost 0.17 pp after Conservative PM Steve Baker stated that his colleagues were ready to vote against amendments to Chequers plan, and the afternoon the measure added 0.30 pp with the reports that the terms of the Brexit deal could be agreed upon by Monday. The day's moves left the GBP Index just below the neutral level, and on Wednesday it turned firmer north, climbing to the +0.50% mark alongside the Euro's gauge, which recovered to the baseline.
The CHF Index's behaviour was at the time closer to that of its Japanese peer, and the measure stayed stagnant during the first part of the day and enjoyed a sharp 0.50 pp rise in the evening. On Thursday, however, the gauge suffered an even sharper fall, nosediving to -0.50% while the GBP and the EUR Indexes swayed near the +0.25% and +0.00% lines.
On Friday, in turn, the CHF Index remained little moved, but the Pound's and the Euro's measures lost some ground at the back of the Yen's index's upsurge. Ultimately, all three measures ended up below the baseline, with the GBP Index posting its first negative result after two periods of solid gains, the EUR Index reversing its previous 0.11% growth, and the CHF Index reporting its third consecutive weekly loss. On the long-term basis, the only major change was the Euro's measure dropping its 4W change into the negative territory after seven periods of positive readings.
Asia-Pacific: JPY, AUD, NZD
The JPY Index was the period's leader, as it posted its greatest weekly growth since August 10 and its second over-1.00% gain in a row. The result allowed the measure to take the YTD leading position back from its US peer and to gain good ground on the Franc's gauge after four weeks of remaining second-best behind one or the other index. The gauge also managed to return its 4W and 26W changes into the positive area.
The Yen's measure started the week by surging above the +0.50% line, prompted by renewed tensions in the US-China trade dispute which were fuelled by reports of the US trying to push China out of the deals with other countries and US Secretary of State Pompeo saying that the US had a fundamental disagreement with China and great concerns about its actions. Another major surge of the JPY Index was observed on Wednesday, against the background of a fall in the US equities, as the measure went from +0.30% in early afternoon to +1.50% at the Asian open. The gauge neared the +1.50% line again on late Friday, but failed to breach the level both times.
Despite strong Yen's performance, the commodity-linked Antipodeans, which usually serve as counterweights to their safe-haven neighbour, also finished the week in the positive territory. Both measures spent most of the period above the baseline, with Wednesday's Yen's surge being the background to the only exception as the AUD Index proved more sensitive and tumbled to the -0.25% mark.
In the end, the two main losers of the previous period closed the top-three of the past week's performers, though the results failed to change their long-term standings.
Volatility
{ATTACHMENT}With all the ups and downs seen in the currency indexes, turbulence picked up above the long-term norm. The only currencies to not raise their weekly volatility medians above the 0.030% level were the US Dollar, the Loonie, and the Euro, while the Yen reported a very high reading of 0.038%.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}The US CPI release was one of the week's most turbulent events, both in terms of the volatility levels it prompted and the number of affected currencies. Disappointing data caused the USD Index to fall by 0.21 pp in the first 10 minutes after the release, and the Dollar's volatility aggregate jumped to 0.060%. That, however, was the lowest of the four peaks formed at the time of the event. The JPY Index lost 0.19 pp, which pushed the currencies volatility to 0.065%, while the AUD and the NZD Indexes added 0.24 pp and 0.27 pp, respectively, putting their volatility at 0.068% and 0.073%.
The rise in crude oil inventories reported by the EIA pushed the CAD Index down by 0.16 pp and the Loonie's volatility up to 0.079%. Above-average reactions were reported by CAD/JPY, CAD/CHF, and, interestingly, NZD/CAD.
Europe: EUR, GBP, CHF
{ATTACHMENT}The Pound's volatility aggregate formed numerous above-market-average peaks during the week, with many of them marking moves that could not be linked to any specific events.
The most notable among such peaks were the ones observed on Monday, when the Pound's volatility jumped to 0.050% first as the GBP Index fell by 0.17 pp and then as it grew by 0.10 pp. In both cases the highest readings were reported by GBP/CAD and GBP/JPY, with the second peak also being fuelled by EUR/GBP overturbulence.
Some other major peaks were prompted by various Brexit headlines. Tuesday's Baker's comments pushed the Pound's volatility to 0.043%, while the afternoon positive reports caused a 0.069% high peak.
Friday saw three notable volatility splashed formed by the Pound's pairs. In the morning, it was reported that PM May was to make a public statement pledging that the UK would not agree to unlimited inclusion in the customs union. The report was promptly disproved by the PM Office, and the GBP Index lost 0.21 pp in 20 minutes, pushing the currency's volatility to 0.047%. Later, however, the same sentiment was expressed by UK Brexit Secretary Raab, who also stated that November 27 was set as the date for the common vote on the deal. This prompted a minor gain of 0.07 pp in the GBP Index, but caused volatility to jump to moderate level of 0.045%. Finally, the day's highest peak of 0.55% was formed as the GBP Index lost 0.13 pp after it was reported that the UK was looking to discuss extensions to the Brexit transition period to solve the Irish border issue.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}The Yen was the only major to rival the Pound in the number of the volatility peaks formed during the period. Again, most of them were not prompted by any particular event, and were the results of the JPY Index's jumps and drops in response to changes in the market's mood.
Two peaks to note here were the Yen's and the Aussie's turbulence surges observed on Wednesday. The former marked the start of the JPY Index's rally, as the measure added 0.17 pp and the currency's volatility jumped to 0.052%. The latter, in turn, stood at 0.061% indicated the sharpest stage of the AUD Index's downslide, when the measure lost 0.20 pp in 10 minutes.
Currency Pair Correlations
{ATTACHMENT}The period's correlations showed relatively small changes, with many of the weekly distributions extending the patterns seen in the monthly values.
Such was the case with NZD/USD correlations with GBP/USD and EUR/USD, most of which dropped further below the long-term medians, and AUD/CAD correlations with NZD/USD and AUD/USD, whose weekly distributions shifted their mass closer to the extremely high levels.
The greatest strengthening was observed in correlations between GBP/JPY and USD/JPY, for which almost all values climbed above the 0.50-point significance threshold. Meanwhile, GBP/JPY correlations with GBP/USD reported weakening, with the readings falling below both the elevated monthly levels and the more modest long-term values.
Also notable were the changes signalled by AUD/USD correlations with GBP/USD and EUR/USD, whose distributions reported heavy insignificant tails.