Market overview for October 15 – October 19 2018: Most of the currency indexes post moderately negative changes, but their development throughout the week remains turbulent, allowing the volatility to hold on solid levels. Most prominent changes are reported by GBP/USD correlations with NZD/USD and AUD/USD.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
The previous period's zigzagging patterns extended into the past week, but lost the amplitude, with most of the observed currency indexes remaining in the ±0.50% range. In addition, most of the measures posted negative results, with only the New Zealand, the Australian, and the US Dollar's gauges reporting weekly gains.
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North America: USD, CAD
The Greenback's index had another feeble period, spending most of the week below the baseline. The measure managed to edge into the positive territory only in the last trading days and ended up posting a near-zero gain, but still made it into the top-three performers as most of its peers closed the week below the baseline.
There were several fairly important entries in the US economic calendar, but neither of them proved to have a major impact on the USD Index. The role of the pivotal event ended up going to the JOLTS job openings, which came in at the series' high and saw the Dollar's measure cut its decline with a 0.10 pp jump. The gauge's recovery carried on till Wednesday evening, when the USD Index got stuck on the baseline, and then proceeded to sway between the zero level and the +0.25% mark.
After posting an over 1.00% loss in the previous period, the Canadian Dollar's measure opened the past week 0.14 pp above the previous Friday's close, but failed to find further support and ended up reporting another negative reading. The moderate 0.68% loss was the week's poorest result, and caused the CAD Index to report a negative 4W change and to drop its YTD reading below that of the Euro, thus making it the third-worst performer on the long-term basis.
The CAD Index started the week by falling below the baseline alongside its US counterpart, but skyrocketed back into the positive area after the release of the BoC business survey, which reported high labour shortage and expectations of inflation climbing above 2% in the next two years. The Loonie's measure added 0.51 pp in the hour following the release and proceeded to gain ground throughput most of Tuesday, reaching its week's high of +0.40%. From there, however, the gauge went into an uneven downslide, which halted at the -0.25% line in Friday's Asian trading. The CAD Index enjoyed a half-day of recovery alongside its Antipodean peers, but was hit by the midday data release showing both CPI and retail sales numbers disappoint expectations. The measure lost 0.47 pp in the week's sharpest 10-minute fall and barely managed to edge above the -0.75% line in the day's last trading hours.
{ATTACHMENT}Europe: EUR, GBP, CHF
The Swiss Franc's measure opened the week with the greatest jump, gaining 0.20 pp on the previous Friday's close, and was among the strongest performers by the start of the Monday's North American session. However, from there the CHF Index joined its US and Japanese peers in their downslide, falling to the -0.50% line by Tuesday afternoon. The measure remained near the line for the rest of the period, thus posting its fourth consecutive weekly decline.
The single currency's measure, too, had another poor period, posting its second weekly loss in a row and sending its MTD change into the negative territory. The EUR Index spent most of the week in a downtrend, being largely pressured by the Italian budget issue. By Friday noon, the measure fell to its week's lowest value, which stood virtually on par with the absolute low reached by the CAD Index a few hours later. However, against the background of the Dollar's weakness and the Canadian's plunge, the EUR Index went sharply up, erasing most of its loses and stopping at the -0.20% line by the end of the North American trading.
After posting a moderate 0.25% loss in the previous period, the Pound's index opened the week 0.48 pp fall from the Friday's close, weighted by the over-the-weekend Brexit headlines, and finished the period lower still, reporting a minor 0.10% weekly loss.
The measure's movements throughout the week were governed by both Brexit developments and macroeconomic releases. Its strongest advance took place on Tuesday morning, when it started European trading by jumping 0.13 pp as German EU Minister Roth stated that it was clear that the Brexit deal will be reached, and then gained 0.06 pp and 0.07 pp around the UK employment data release. With the additional fuel coming from the USD Index's weakness, the Pound's measure peaked to its week's high of +0.70% ahead of the New York open, but then went sharply down. Wednesday saw the GBP Index being pushed by disappointing CPI data, USD Index's recovery, and the anticipation of the EU Economic Summit. The measure fell to the baseline and rebounded to the +0.25% line only to be knocked down again by the reports of the EU officials called off the planned November 17-18 Brexit summit. The index reached its week's low of -0.50% at Friday noon, and then turned north alongside the Euro's measure. Getting additional fuel from the late Brexit headlines claiming that UK PM May was ready to drop a key demand to resolve the Northern Ireland border issue, the GBP Index added 0.18 pp to finish the week with the smallest reported loss.
Asia-Pacific: JPY, AUD, NZD
The NZD Index was the week's most prominent measure, as it became the best performer for the second period in a row and posted a strong 1.61% gain. The past two results allowed the gauge to finally pare the over-2.00% loss it suffered in the first week of October and push its MTD change into the positive territory.
The Kiwi's gauge started the week on a strong footing, advancing ahead of the CPI release and gaining 0.52 pp in the period's sharpest 10-minute jump after the better-than-expected data came out. The measure added a total of 0.65 pp in the 20 minutes following the event and peaked above the +1.00% line. It then proceeded to sway around the level until Friday, when it shot up again alongside its commodity-related peers as all the other gauges went south, reaching the week's absolute high of +1.84%.
The Yen's measure seemed weighted by the lack of clear risk-off mood, and spent the period alongside its Swiss peer. The only major deviation between the two gauges was observed on Thursday, when the JPY Index managed to gain significantly more ground and settled around 0.20 pp above its counterpart, thus finishing the period with a more moderate loss of 0.35%.
Meanwhile, the Australian Dollar's index failed to take advantage of the Greenback's and the Yen's weakness and spent most of the period near the baseline. The index managed to settle in the positive territory after Thursday's employment data release, but failed to cross above the +0.50% line, ending up with a 0.18% weekly gain.
Volatility
{ATTACHMENT}The reported median volatility levels lost some points compared to the previous period, but still remained at solid levels, with the Euro posting the lowest reading of 0.027%. Three of the observed currencies – the Pound, the Yen, and the Kiwi, – showed volatility medians above 0.030%.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}The Canadian Dollar's sharp reactions to the week's fundamentals fuelled two of the period's highest volatility peaks. The most prominent one was formed by the CAD Index's plunge in the aftermath of the CPI and retail sales release, with the Loonie's volatility aggregate reaching its highest level since early July. Above average readings were reported by NZD/CAD, USD/CAD, and CAD/JPY.
The CAD Index's jump at the time of the BoC survey release prompted a more moderate volatility peak of 0.062%. Here the sharpest reaction again came from CAD/JPY, while the only other above-average reading was posted by CAD/CHF.
Europe: EUR, GBP, CHF
{ATTACHMENT}Once again the Pound was the leader in the reported number of prominent volatility peaks. The most notable ones were observed on Tuesday, when the Pound suffered a three-hour interval of overturbulence. The currency's volatility first picked up with the GBP Index's jump after the German EU Minister's Brexit comments, and continued to rise throughout the measure rapid ascend, reaching its high with the index's jump to the period's high.
The week was notable for the rare occurrence of the Swiss Franc's volatility peak, though it was formed against the background of the EU economic release. As the EUR Index lost 0.07 pp in its initial reaction, the CHF Index gained 0.10 pp, pushing its volatility above the single currency's reading. Interestingly, the highest individual values were reported by NZD/CHF, AUD/CHF, and GBP/CHF.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}The NZD Index's sharpest 10-minute jump naturally prompted the week's greatest volatility peak, with the currency's aggregate reaching its highest level since early February. The sharpest reaction came from the safe-haven pairs – NZD/CHF, NZD/JPY, and NZD/USD.
Australia's employment data release raised volatility for both Antipodeans, with the AUD Index gaining 0.14 pp and the NZD Index losing 0.12 pp. With that the Aussie's turbulence measure jumped to 0.040%, but the Kiwi's – to 0.041%.
Currency Pair Correlations
{ATTACHMENT}The most prominent changes in the bonds between the observed instruments were reported by the GBP/USD correlations with the Antipodean pairs. Thus the pair's correlations with NZD/USD and AUD/USD extended the monthly pattern, pushing their weekly distribution almost entirely below the long-term median and into the insignificant levels.