Market overview for October 1 – October 5 2018: The market's median volatility picks up, but the peaks remain moderate. The Pound's index posts its year's greatest weekly gain, the Kiwi's measure reports the greatest weekly loss in 2018 so far. Correlations show little significant changes.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
The past week was notable for extended trends on both sides of the baseline, with the Pound's, the US Dollar's, and the Yen's indexes finishing the period above the +1.00%, and the Antipodeans falling below the -1.50% mark.
{ATTACHMENT}North America: USD, CAD
The Dollar's measure had another period of strong performance as it posted a 1.05% weekly gain after its previous result of +0.90%. This allowed the index to retain the leading position on the YTD basis, with its long-term growth extending to +4.71%.
The USD Index opened the 0.12 pp below the previous close and spent Monday trading near the baseline. Tuesday's Asian session saw the measure pick up against the background of its Australian peer's post-RBA fall, but the main rally of the Dollar's gauge took place on Wednesday. During the day, the index went from +0.25% to +1.00%, with the late-evening surge fuelled by the Fed Chair Powell's comments allowing it to overcome its Canadian peer. As Powell noted that the current rates are still accommodative and stated that the Fed might raise them past "neutral", the USD Index gained 0.25 pp in 50 minutes, settling at the +1.00% line and holding the level till the end of the week.
The Canadian Dollar's measure had its fourth green week in a row, but posted a marginal growth of 0.22%. On the YTD basis, however, the CAD Index added 0.64 pp, raising the long-term gain to +1.13% from +0.49% reported in the previous period. The gauge was also notable for posting its greatest 4W growth since the April 13 weel.
During the first half of the week, the CAD Index was mainly governed by news about the new US-Mexico-Canada deal. The measure open the period 0.43 pp above the previous Friday's close, and as reports came in later in the Asian session on the USMCA, the trade pact set to replace NAFTA, the Loonie's gauge added 0.17 pp to settle at the +0.25% line. European trading saw the CAD Index reach the +0.50% mark, and fluctuated between that level and the +0.75% line until breaking out to +1.00% in Wednesday afternoon. On Thursday, however, the momentum was lost, and the measure tumbled to settle below the +0.50% line. On Friday, Canadian employment data was overshadowed by the Pound strength and the Greenback's zigzagging, and the CAD Index ended up going south to finish the week near the Euro's measure.
{ATTACHMENT}Europe: EUR, GBP, CHF
Meanwhile, the Euro's and the Swiss Franc's gauges seemed to be locked between the Antipodeans' tumble and others' ascent, as they opened the week on par with the previous close and fluctuated between the -0.50% mark and the baseline throughout the period.
Nevertheless, the EUR Index managed to fix itself at the +0.00% level in the end of the week and edged into the positive area by the period's close, posting a moderate +0.11% weekly gain. The measure's YTD change remained weakly negative.
The Franc's index largely mirrored the Euro's measure's moves in the end of the period, but remained around 0.50 pp below, thus posting its second consecutive weekly loss. The result caused the CHF Index to surrender the second-best position on the YTD basis to its Japanese counterpart.
The Pound's index posted the period's best result and its year's greatest weekly gain so far. The +1.68% weekly growth put its YTD change into the positive territory for the first time since the July 13 week.
As usual, the GBP Index was mostly governed by the Brexit headlines. The measure shot up on Monday, adding 0.55 pp on reports that the UK planed a compromise on the Northern Ireland issue. The momentum, however, proved to be not strong enough to set off an uptrend, and further undermined by UK Brexit Secretary Raab stating that the Irish border remained an outstanding issue and that two customs regimes in the UK were out of the question. Thus the Pound's measure fell back to the baseline within three hours. On Tuesday, the index went further south as additional pressure came from worse-than-expected construction PMI release, but the decline was capped by Boris Johnson calling on his supporters to back Theresa May's Brexit plan, despite many expecting him to challenge the PM for leadership. The GBP Index zigzagged, settling at the -0.25% line for the rest of the day and turning to recovery in the Asian session. Thursday saw another report of the UK preparing an Irish border proposal, which evoked a less sharp reaction than Monday's speculation, but support the Pound's measure's ascent. Finally, Friday was marked by reports of the EU Brexit negotiators believing the deal to be "very close", and being ready to offer the UK a "supercharged" free trade deal, and the GBP Index made several strong moves, finishing the week 0.60 pp above its closest peer.
Asia-Pacific: JPY, AUD, NZD
The JPY Index started off 0.18 pp below the previous period's close, but spent most of the week competing with the US Dollar's measure in the appreciation area. The Yen's gauge ended the period 0.01 pp above its US peer, posting its first positive result after three weeks of losses. With that the measure pushed its YTD change above the +3.50% mark, but still failed to take the leading position back from the USD Index.
The Australian and the New Zealand Dollars' measures, in turn, were undisputed leaders in the negative area. The NZD Index finished the week at -2.10%, the absolute greatest weekly loss recorded in 2018 so far, while the Aussie's measure fared slightly better with the -1.75% result. On the YTD basis, the Kiwi's gauge continued to outperform its Australian peer, but the gap between the readings narrowed.
In the first two days of the period the Antipodean indexes were going their separate ways. The NZD Index dropped below the baseline with the fall in business confidence reported by NZIER on late Monday, and the Aussie's measure tumbled after the release of the RBA rate statement on early Tuesday. During Wednesday's Asian session, however, the two indexes seemed to synchronise, and proceeded to move on par with each other until Friday. There the AUD Index got minor support from strong retail sales data, and the Kiwi's gauge proved to be more sensitive to its peers' strength, which left the latter to close the week 0.35 pp below its counterpart.
Volatility
{ATTACHMENT}In general, the past week was relatively turbulent, with most of the observed currencies posting volatility medians of or above 0.030%. The lowest reading of 0.027% was reported by the US Dollar.
Still, individual peaks that mark sharp moves of the currency indexes remained subdued, with only one of the volatility aggregates reaching above the 0.100% mark.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}The situation around NAFTA made the start of the week remarkably volatile for the Canadian Dollar. As the October 1 deadline approached, the CAD Index zigzagged in the weeks first trading hours, with the currency's volatility jumping to 0.040% at the Tokyo open and reaching 0.058% after the deal was reported to be reached and the measure added 0.14 pp. In the next move, the CAD Index lost 0.11 pp, putting its volatility to 0.063% – the highest point in the overturbulence interval. As a result, the Loonie's volatility held above the market's average for almost three hours.
Similar zigzagging fuelled the US Dollar's volatility peak on Friday. The USD Index added 0.21 pp in the first 10 minutes after the employment data release, and proceeded to lose 0.33 pp in the next two candles, thus causing the currency's volatility aggregate to jump to 0.057% and then reached higher to 0.079%. Both times the highest individual volatility was reported by NZD/USD, USD/CAD, and AUD/USD.
Europe: EUR, GBP, CHF
{ATTACHMENT}The Pound was once again the period's leader in volatility peaks' forming. Monday's surge of the GBP Index fuelled the week's greatest turbulence splash, with the Pound's volatility aggregate reaching 0.138%. Above average reactions came from GBP/USD, GBP/CHF, GBP/JPY, and GBP/CAD.
On Tuesday, Boris Johnson's unexpected statement caused the GBP Index to add 0.14 pp, and with that the Pound's volatility jumped to 0.048%, with GBP/CAD, GBP/JPY, and GBP/USD posting almost identical values.
Finally, Thursday's and Friday's jumps of the Pound's measure formed similar peaks of 0.045% and 0.043%, respectively.
Meanwhile, on Monday, disappointing manufacturing PMI release caused the CHF Index to lose 0.14 pp in its initial reaction, pushing the Swiss Franc's volatility to 0.047%. Notably, one of the three greatest readings was reported by EUR/CHF.
The single currency formed a prominent volatility peak in Wednesday's Asian session, when it was reported that Italy was planning to control its budget deficit through spending cuts and lower it to 2.0% of GDP in 2021. The new sent the EUR Index 0.18 pp up and put its volatility at 0.048%. Interestingly though, the sharpest reaction came from the Yen, whose currency index lost 0.25 pp, and whose volatility aggregate jumped to 0.066%.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}The only notable volatility peak related to the Asia-Pacific data release was formed by the Australian Dollar's aggregate on Friday. As the AUD Index rose by 0.16 pp with strong retail sales data, the Aussie's volatility jumped to 0.054%, with above-average readings being posted by AUD/JPY, AUD/USD, and AUD/CHF.
Currency Pair Correlations
{ATTACHMENT}Correlations selected for the previous period showed very little significant changes in the bonds between the observed currencies. Most of the developments pointed at the weakening of the relationships, with the weekly distributions either easing down from the elevated monthly levels, or dropping below the long-term norm.
Among the former were correlations between AUD/CAD and AUD/USD, whose weekly median came in line with the half-yearly value, and whose distribution shifted down from the elevated monthly levels.
GBP/JPY correlations with EUR/USD and GBP/USD also showed some weakening compared to the strong four-week levels, but both these measures also reported distorted distributions compared to the long-term norm. Thus the first one had a notably heavy upper half, while the second formed two peaks, both above and below the long-term median.
Meanwhile, weekly correlation distribution for AUD/USD & GBP/USD remained subdued, in line with monthly readings and below the long-term levels.
Correlations between GBP/USD and NZD/USD were the only ones to report a strengthening from marginally subdued four-week levels back to 26-week readings.