Market overview for November 12 – November 16 2018: The Pound suffers record volatility, its index posts its greatest weekly loss since the beginning of the year and drops its YTD change below -2.00%. The Antipodeans continue their winning streak, and the NZD Index's YTD change turns positive.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
During the past week, the market was primarily governed by the Brexit developments, and thus the Pound's index was the main mover among the observed measures. Most of its peers remained within the ±0.50% range, with notable exceptions being the Antipodeans, which retained their leading positions in the appreciation area, and the US Dollar's gauge that finished the week as the second-worst performer.
{ATTACHMENT}North America: USD, CAD
After barely managing to cross above the baseline in the end of the previous period, the US Dollar's index finished the past week with a palpable 0.84% loss. The result pushed its November loss to 1.59%, in line with the Yen's reading of -1.60% and only a few pp above the Loonie's MTD fall of 1.51%.
The USD Index spent most of the period counteracting its UK peer's moves, opening the week 0.14 pp above the preceding Friday's close and sliding below the baseline on Wednesday. On Friday, however, the measure to gain ground on the Pound's downslide as it got some pressure from cautious comments from the policymakers. As the Fed's Vice Chairman Clarida praised "gradual policy approached" and noted that the Fed had to "factor global slowing" in its outlook, and Dallas Fed President Kaplan cautioned that the weakening global growth might "spill to the US" and said that the country needed to moderate its government debt growth, the USD Index accelerated its decline and lost nearly 0.60 pp in an hour. The fall put the measure to the -0.75% line and on the second-worst performer's position.
The Canadian Dollar's index showed little directional movements in the past period and spent the week fluctuating between the -0.50% and +0.25% lines. Ultimately it posted a 0.35% loss, thus becoming the period's third-worst performer and reporting its third consecutive weekly decline.
{ATTACHMENT}Europe: EUR, GBP, CHF
The Euro's and the Swiss Franc's measures spent the week subdued and posted minor changes of +0.13% and -0.18%, respectively. For the EUR Index the result became the first weekly growth after five periods of declines, but was not enough to have a meaningful impact on the long-term readings.
The Pound's measure had a week full of both slumps and surges, but ended the period below the -1.60% mark, posting its greatest weekly decline since the beginning of the year. Coupled with the previous period's moderate drop, the result erased the index's November gains, making its QTD change third-worst after the Loonie's and the Franc's readings and putting its YTD decline below the -2.00% line for the first time since August.
The GBP Index was again pushed around by the Brexit headlines, and the past was the most volatility one among the recent overturbulent periods. The weekend was marked by the reports of possible resignations of several UK ministers, and the Pound's measure opened Monday trading 0.34 pp below the preceding Friday's close and neared the -0.50% line in the first hours of the London session. In the afternoon, however, the index jumped back to the baseline, gaining 0.49 pp after the EU Chief Brexit negotiator announced that the main point of the Brexit agreement were ready to be presented to the UK Cabinet. The momentum, however, failed to take the measure further, and the index tumbled back to the zero level, with its retreat accelerated by the UK government spokesman noting that Barnier's comment "should be treated with scepticism".
This zigzagging pattern reigned over the GBP Index for the next two days. On Tuesday, the measure jumped to the +1.00% line as it gained 0.57 pp as it was announced that the UK and the EU negotiators agreed on an Irish border deal. In an hour, however, various comments from the Irish and UK officials pushed the GBP Index down to the +0.50% line, and Wednesday morning saw it tumble to the baseline as more details on the draft agreement were reported by the news outlets. Later hours saw even more extreme movements, as the GBP Index lost 0.61 pp and gained 0.30 pp in half an hour after the fall-fuelling reports of PM May cancelling the press conference she was expected to give after the Cabinet meeting were corrected by the announcement that a short statement would be published instead. Next came the reports of a possible call for a no-confidence vote, causing the GBP Index to lose 0.36 pp and tumble below the baseline, and finally it was announced that the Cabinet supported the proposed deal and the Pound's measure surged by 0.77 pp. All the zigzagging was bounded by the baseline, and with the day's last moves leaving the index on the +0.50% mark it seemed like the measure would hold among the gainers, but Thursday brought a principal turn for the Pound's gauge.
The GBP Index started to lose ground in ahead of the London open, when the DUP member Shannon said that the party would not support the PM's deal, and then tumbled by 1.27 pp in an hour after UK Brexit Minister Raab announced his resignation. The measure found itself near the -1.5% mark, way below all of its peers, and zigzagged down to the -1.75% line with more resignations and reports of a letter of no-confidence on the PM being submitted. Friday saw the index reclaim some of the lost ground, with the New York open being marked by a 0.30 pp surge, but further trading put the measure back on the down path, and it finished the week near the period's lowest levels.
Asia-Pacific: JPY, AUD, NZD
The Yen's index broke out of the downtrend it was governed by in the two previous periods and spent the week fluctuating around the baseline. Ultimately it ended up in the positive area, posting a minor 0.14% growth.
The Antipodeans retained their leading positions, posting solid weekly growth for the third period in a row. The results allowed the NZD Index to lift its YTD change into the positive area for the first time since April and put its 26W change above zero for the first time since June.
Unlike the Kiwi's measure, which was climbing up from the start of the period, the AUD Index spent the first three days of the period fluctuating between the baseline and the -0.50% mark. The measure seemed poised for an insignificant result, but the situation was changed by the release of the Australian employment data on Thursday. As both employment change and unemployment rate came in better than expected, the AUD Index surged by 0.51 pp in the week's sharpest 10-minute jump and added a total of 0.58 pp in forty minutes following the release. The surge put the measure at the +0.50% line and allowed it to reach the +1.00% mark while it was mirroring its New Zealand peer's moves in the end of the week.
Volatility
{ATTACHMENT}The past week was marked by major overturbulence, with even the lowest median volatility levels, reported by the Loonie, the Euro, and the Greenback, standing above the 0.030% mark. The absolute leader was the Pound, which posted its highest median volatility since early February, and absolute highest since the Yen's reading reported at the same time.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}The only major volatility peak formed by the North-American currency was fuelled by the USD Index's Friday tumble, and even that was barely notable compared to the Pound's turbulence at the time. Still, the initial 0.17 pp fall put the Greenback's volatility at 0.056%, and it held near the 0.060% line for over three hours.
Europe: EUR, GBP, CHF
{ATTACHMENT}Almost all of the period's major volatility peaks were formed by the Pound's measure, and almost in all of those cases the highest overturbulence levels were reported by GBP/JPY, GBP/USD, and GBP/CAD.
One of the notable exceptions was the peak observed in Tuesday afternoon, against the background of the reports of the Irish backstop agreement being reached. There above-average volatility was reported by the Pound's pairs against the three Asia-Pacific currencies. Similarly, the reports of PM May cancelling her post-Cabinet-meeting press conference saw the highest volatility being reported by GBP/AUD.
Unsurprisingly, Wednesday morning peaks were mostly fuelled by the Pound's pair with the European safe-haven – the Swiss Franc.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}Tuesday saw all three of the Asia-Pacific currency push their turbulence measures up. Volatility was fuelled by the JPY Index's 0.12 pp drop and the Aussie's and Kiwi's measures' 0.09 pp jumps against the background of encouraging comments made by the Chinese Premier, who said that China was willing to improve free trade through discussion, and Vice Premier, who announced that he was preparing to visit the US and ease tensions ahead of the Trump-Jinping meeting. The highest volatility of 0.062% was reached by NZD/JPY< while AUD/JPY reading stood a little lower at 0.059%.
Aside from that, the Australian Dollar was the only major that rivalled the Pound in terms of maximum volatility, as it pushed its turbulence measure to 0.125% with the 0.51 pp jump of the AUD Index following the employment data release. The sharpest reactions were reported by the safe-haven pairs – AUD/CHF, AUD/JPY, and AUD/USD.
Currency Pair Correlations
{ATTACHMENT}The greatest changes in correlations were observed among the Pound's pairs.
Thus the currency's pairs with the safe-havens – the Yen, the Swiss Franc, and the Greenback, – saw their weekly correlation distributions shift towards extreme levels and pull their lower tails almost entirely above the 0.50-point significance threshold.
Meanwhile, GBP/JPY correlations with USD/JPY lost some of their usual strength, with their median falling below 0.50 points. Similarly, some weakening was observed in correlations between GBP/USD and EUR/USD.