Market overview for November 5 – November 9 2018: The NZD Index breaks its previous period's record for the greatest weekly gain, the Aussie's measure post its fifth consecutive weekly growth. The Yen steps down as the most volatile major. Correlations between GBP/JPY and USD/JPY fall below the significance threshold.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
The Antipodeans continued to dominate in the appreciation area, while most of the other indexes spent the majority of time below the baseline and finished the week in the negative territory.
{ATTACHMENT}North America: USD, CAD
The US Dollar's index spent most of the time below the baseline, but managed to finish the week in the positive area, posting a marginal weekly gain of 0.05%. The result, however, was enough to turn the measure's 4W change positive.
The USD Index was largely weighted by the midterm election, edging down throughout Monday and Tuesday to open Wednesday near the -0.50% line. Then the measure started zigzagging as the result were coming in, and thus dropped to the -1.00% mark by noon. From there the gauge started to recover the lost ground, returning to -0.50% in Thursday morning, and in the afternoon it received additional fuel the FOMC. The policy maker introduced little changes to its statement, noting that unemployment has declined and housing spending continued to show strong growth, while growth of business fixed investment has moderated. On the whole, however, the release was seen as hawkish and strengthened hopes for a December hike, prompting the USD Index to add 0.39 pp in the hour following the event and thus to near the baseline. On Friday, one last push was provided by the Pound's measure's tumble, and the Dollar's gauge managed to cross into the positive territory, becoming one of the three indexes to post weekly growth.
The Canadian economic calendar was lacking any major events, and the Loonie's index spent the week sliding down and answering its peers' movements. As a result, the CAD Index became the period's worst performer, posting a solid loss of 0.86%. The result put its QTD change back below the -2.00% mark, making it the worst reading for the observed currencies, and pushed its YTD loss back below -1.00%. The index's 26W change was reported at -0.10%, its first negative reading since late July.
{ATTACHMENT}Europe: EUR, GBP, CHF
The Swiss Franc's measure was weighted by the Antipodeans' strength throughout most of the period. It slid to the -0.50% mark by Thursday, but then turned to recovery together with its US and Japanese peers, as the market's mood changed in the end of the week. Thus the CHF Index cut its weekly loss to -0.20%, with the modest result having little to no effect on the long-tern readings.
The Euro's index spent most of the period on the baseline and slid below it in Wednesday afternoon with the progress of the US Dollar's measure's recovery. Eventually, the gauge flattened out at the -0.50% mark, and posted a 0.46% weekly loss, thus finishing the week with the third-worst result. The reading marked the index's fifth consecutive weekly loss, and the measure's YTD change fell below -2.00% for the first time since the year's start.
The Pound's index finished the week at -0.39%, just 0.07 pp above the Euro's measure, with no major changes to the long-term readings.
The GBP Index continued to be affected by the news around Brexit. Over the weekend it was reported that the EU and the UK have reached an agreement on the customs union, and though the claims were later dismissed as "speculations" by the PM's Office, the Pound's measure opened the week 0.42 pp above the preceding Friday's close. The first half of Monday saw the gauge zigzag between the baseline and the -0.25% mark, dropping and jumping with disappointing Markit Services PMI release and various Brexit headlines. In the afternoon, however, the index started to gain ground and reached the +0.25% line as the Times, citing no sources, reported that Brussels was going to offer the UK an Irish border compromise, with an "independent mechanism" for London to end the temporary arrangement. On Tuesday morning, the Pound's measure fell back to the baseline briefly, after the Irish DUP's lawmaker twitted that it looked like "we're heading for no deal Brexit", summing up several preceding statements of other officials and fuelling the GBP Index's decline. Nevertheless, the measure recovered swiftly and settled back at the 0.25% line. Thursday saw the index lose the level again, and on Friday it plunged below the baseline, losing 0.38 pp in an hour after Jo Johnson announced his resignation, saying that he could not support the government's proposed Brexit deal as the agreement would be "a terrible mistake" and "bad news" for the services sector.
Asia-Pacific: JPY, AUD, NZD
Much like its Swiss peer, the Yen's index was weighted by the Antipodeans for most of the period and then regained some of the lost ground in the week's last trading day. As usual, though, the JPY Index's moves were more dramatic, with the measure reaching the week's absolute low of 1.25% on Thursday, and recovering more than half of its losses later on. Ultimately, the Yen's measure posted the period's second-greatest weekly decline of -0.58%, which came after the index reported its record loss of 1.72% in the previous period. With that the gap between the US Dollar's and the Yen's indexes' YTD results almost doubled, fixing the JPY Index more firmly on the second position.
The NZ Dollar's measure was the period's leader as it posted a 1.80% weekly growth, thus breaking the record it set on the preceding Friday. This allowed the NZD Index to further decrease its YTD loss, putting its reading in line with those of the Euro and the Canadian Dollar. The measure's 26W loss came in lesser than 1.00% for the first time since mid-June.
The NZD Index started the week strong, climbing to +0.50% and remaining bounded by the +0.25% and +0.50% lines until Tuesday evening. Then came the measure's defining move, as it gained 0.86 pp in the first 10 minutes and the total of 1.00% in the hour following the release of the better-than-expected labour data. The NZD Index surged above the +1.25% line and proceeded to mirror its Australian peer's movements, staying around 1.00 pp above its counterpart.
The Aussie's index enjoyed the risk-on mood and the US Dollar's weakness for most of the period, thus posting its fifth consecutive weekly gain.
Volatility
{ATTACHMENT}The market's turbulence shifted down from the previous period's elevated levels, with most of the volatility medians laying below the 0.030% mark. For the first time since May, the Yen's reading was not among the highest ones, which were instead reported by the Aussie, the Pound, and the Kiwi.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}The past period was notable for several intervals of continuous overturbulence, and one of them was fuelled by the USD Index's zigzagging during Wednesday's Asian trading, when the US general election results started to come in. In the hour between 00:50 and 01:50 GMT the Dollar's index was interchangeably jumping and falling by about 0.10 pp, and its volatility held between 0.055% and 0.078%.
On Thursday, the FOMC statement caused the USD Index to gain 0.13 pp in its sharpest 10-minute move during the post-release advance, while the CAD Index lost 0.19 pp at the same time. Thus the currencies' volatility aggregates jumped to 0.047% and 0.055%, respectively, with USD/CAD reporting the reading of 0.075%.
Europe: EUR, GBP, CHF
{ATTACHMENT}While the Kiwi posted a high median volatility reading mostly due to the post-labour-data turbulence, the Pound achieved the same by repeatedly pushing its volatility aggregate above the market's average.
The Pound's volatility reached its highest levels on Monday, when the GBP Index was consequently affected by a data release and several Brexit-related reports. The Services PMI number prompted the GBP Index to lose 0.17 pp and put its volatility at 0.062%. From there and till early afternoon the currency's volatility held above the 0.060% mark, with additional fuel coming from the Telegraph's report on UK Brexit Secretary Raab's possible resignation over the Irish backstop issue. This, however, was later dismissed by the Secretary himself.
Another prominent wave of overturbulence was observed on Tuesday, when the DUP's Donaldson's pessimistic comment accelerated the GBP Index's fall, which later turned into recovery as the PM Cabinet's meeting brought back Brexit optimism. These events saw the Pound's volatility hold near the 0.050% line for about four hours.
On Wednesday, the Pound's volatility jumped above the 0.050% mark for the last time, as the GBP Index zigzagged with reports of the Cabinet ministers receiving a draft of the Brexit withdrawal agreement, which were later clarified by statements that the draft did not include the backstop solution. The GBP Index jumped by 0.10 pp and then dropped by 0.14 pp, sending the currency's volatility to 0.056%.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}The New Zealand Dollar's post-labour-data surge prompted the week's greatest volatility peak of 0.206%, the highest one since the BoC May 30 rate statement that put the Loonie's volatility at 0.240%.
The Kiwi was also the currency that formed the week's first prominent volatility peak, as the NZD Index lost 0.12 pp after the release of the New Zealand Treasury's monthly economic indicators, putting the currency's turbulence measure at 0.051%.
On Wednesday, the RBNZ rate statement saw the NZD Index lose 0.18 pp and then reclaim 0.14 pp in the twenty minutes after the release, which put the Kiwi's volatility at 0.051% and then pushed it higher to 0.060%.
The RBA's monetary policy release on Friday, in turn, saw the AUD Index lose 0.11 pp in its initial reaction, prompting its volatility to jump to 0.038%. The NZD Index, in turn, gained 0.10 pp as the Aussie's measure started to go down, but then pulled back, erasing the gains and thus putting its volatility at 0.044%, above the Australian's reading.
Currency Pair Correlations
{ATTACHMENT}Correlations selected for the period showed some considerable shifts in the bonds between the observed currency pairs.
The most striking change took place in correlations between GBP/JPY and USD/JPY, whose weekly distribution fell below the significance threshold of 0.50 points, thus signalling a break in the usually moderately strong bond. Meanwhile, GBP/JPY correlations with GBP/USD showed further strengthening, extending the pattern seen in monthly distribution and putting their median on an extremely high level.
Further strengthening was also observed in AUD/CAD correlations with AUD/USD and NZD/USD. Meanwhile, AUD/USD correlations with GBP/USD and EUR/USD shifted up from slightly subdued medium-term levels, as did correlations between EUR/USD and GBP/USD.
EUR/USD correlations with NZD/USD, in turn, remained weakened in line with the monthly readings.