Market overview for December 17 – December 21 2018: The Yen's index posts the greatest weekly gain since the beginning of the year. The NZD Index's YTD and the AUD Index's QTD changes fall back to the negative area. Correlations between GBP/JPY and USD/JPY return to normal.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
The pre-holiday trading week proved to be relatively action-packed, with the strong market sentiment pushing the Yen's and the commodity-related currencies' index beyond the ±1.00% range, and some fundamentals eliciting rather sharp reactions.
{ATTACHMENT}North America: USD, CAD
The US Dollar's index spent the past week within the ±0.50% range, remaining below the baseline for most of the time and only crossing into the appreciation territory with Friday rally. As a result, the measure posted a modest 0.29% gain, thus reporting its third positive weekly reading in a row. The Dollar's gauge remained the second-best performer on the YTD basis, the third-best on the QTD basis, and moved down to the fourth position based on the MTD change, exchanging places with the Euro's measure.
The USD Index started the week by easing off the level it climber to in the previous period, and remained glued to the -0.50% line until Wednesday's Fed event. There, as the policymaker delivered the expected raise of the interest rate and announced that 2019 was likely to see another two hikes, the Greenback's measure first reaction was a 0.37 pp upsurge that put it back to the baseline. Thursday's European trading, however, saw the measure erase all of its gains and return to the -0.50% line. The index managed to break away from the level only on Friday, when a rally took it into the positive area.
The Canadian Dollar's index was weighted down by declining oil prices and an overall risk-off sentiment and thus spent the period on a downtrend. Ultimately, the measure became the week's second-worst performer, posting a major loss after the previous period's modest growth which broke its six-week-long losing streak. As a result, the CAD Index brought its QTD decline to the extreme levels recorded at the end of the first quarter. Additionally, the measure's YTD reading was recorded at the lowest level since late June, and its 4W changed showed the greatest decline since March.
{ATTACHMENT}Europe: EUR, GBP, CHF
The Euro's index spent the first four days of the period going north, and ended up reporting a solid 0.90% weekly gain, becoming the second-best performer after the Yen's measure. The result put the measure in the third position on the MTD basis, but was not enough to push its QTD and YTD readings into the positive territory.
Meanwhile, the Swiss Franc's measure largely mirrored the EUR Index's development, but remained around 0.25-0.50 pp below its peer throughput the week, thus ending up with a modest 0.41% gain and surrendering the third-best performer's position to the Pound's gauge. Nevertheless, the result was enough to put the index's QTD reading above zero for the first time in Q4.
After the extremely turbulent previous period, the Pound's index spent the past week within a narrow range. During the first three days, the measure battled the baseline, fluctuating between the ±0.25% marks, but managed to claim the upper limit in late Wednesday trading. On Friday, the GBP Index zigzagged its way above the +0.50% line and managed snatch the third-best performer's position from its Swiss counterpart. The positive reading was sixth in the array of alternating results that set off in mid-November, but was the first occasion when the post-decline gain exceeded the loss reposted in the preceding period. With that the measure's MTD change turned weakly positive, but all of its other long-term results remained in the negative territory.
Asia-Pacific: JPY, AUD, NZD
The New Zealand Dollar's index became one of three measures to finish the period below the baseline, posting its third consecutive weekly decline. The result pushed its QTD reading below the 3.00% mark, making it surrender the best performer's position to its Japanese peer, and put its YTD change back below zero after three periods of positive results.
The NZD Index spent Monday on the baseline, but started Tuesday with an upsurge, which was set off with an improvement in the ANZ business confidence data, but reached far beyond the event's effect and put the measure above the +0.50% mark and in the leading position. The gauge held the level until Wednesday evening, when it was first hit by the Greenback's surge, losing nearly 0.50 pp in an hour and dropping to the baseline, and then reported the week's sharpest 10-minute fall of 0.38 pp after the release of New Zealand Q3 GDP. As the data came in below expectations and far below the RBNZ forecast, the NZD Index lost a total of 0.58 pp in the forty minutes after the event, and then continued to slide down in Thursday's Asian trading. The North American session saw the measure fluctuate at the -0.75% line, but Friday's strong risk-off mood and the Greenback's rally pushed the NZD Index deeper into the negative area.
The Aussie's index posted the week's greatest decline, pushing its MTD change to the lowest level reported by any of the observed measures since the beginning of the year and returning its QTD reading into the negative territory.
Meanwhile, the Yen's index became the period's best performer as it posted the absolute greatest weekly gain recorded since the beginning of the year. With that the measure's QTD growth neared the high levels on the first quarter, and its YTD gain became the greatest among the ones reported so far.
Volatility
{ATTACHMENT}The market's turbulence picked up more steam in the year's last full trading week, with all the observed volatility medians lying at or above the 0.030% threshold. The lowest values were reported by the Euro and the Greenback, while the most turbulent currencies were the Pound, the Kiwi, and the Yen. Notably, though, volatility maxima remained subdued, with only one peak reaching above the 0.100% mark.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}The most influential event in Canada's economic calendar was Wednesday's CPI release, which missed expectations and caused the CAD Index to lose 0.13 pp in its immediate reaction. The Loonie's aggregate volatility measure jumped to 0.051%, with the highest values being reported by GBP/CAD, CAD/CHF, and AUD/CAD.
The most notable peak of the Canadian's volatility, however, was observed on Thursday, when the CAD Index enjoyed a rapid rebound, gaining 0.35 pp in forty minutes after losing over 0.70 pp in three hours. The currency's aggregate volatility reached 0.066%, and the highest readings were posted by CAD/JPY and CAD/CHF.
The US Dollar formed its highest volatility peak with the USD Index's post-Fed surge on Wednesday. Here above-average values were posted by NZD/USD, AUD/USD, and EUR/USD, as the Kiwi's, the Aussie's, and the Euro indexes posted the sharpest declines in the aftermath of the event, losing 0.28 pp, 0.32 pp , and 0.10 pp, respectively. The JPY Index, in turn, gained 0.24 pp on the event, and its volatility aggregate jumped to 0.067%.
Nevertheless, the most interesting US-related event proved to be the NY Fed President Williams' interview, in which he stated that the hikes scheduled for 2019 were not commitments, and that the Fed was "listening carefully to markets", which were "signalling some risks to outlook". The USD Index, averaging the reactions of both its safe-haven and risky peers, showed little movement after the event, but most of its counterparts suffered significant turbulence. The highest volatility was reported by the Yen, whose index lost 0.26 pp as the remarks were delivered and then rebounded by 0.19 pp, thus putting its turbulence measure to 0.081% and 0.090%. The EUR Index lost 0.15 pp and gained 0.26 pp, and its volatility reached 0.061% and 0.079%. Meanwhile, the greatest reverse moves were made by the Aussie's and the Loonie's gauges, which first gained 0.18 pp and 0.21 pp, and then lost 0.44 pp and 0.21 pp, respectively. With the first move their volatility aggregates jumped to 0.059% and 0.060%, but with the second – to 0.085% and 0.078%.
Europe: EUR, GBP, CHF
{ATTACHMENT}The Pound had no major Brexit headlines to influence it during the past week, so its highest volatility peaks were moderate, and were fuelled by the UK data releases.
The higher of the two peaks was formed on Friday, when the GBP Index gained 0.10 pp after a mixed data release. Notably, though, the highest readings were reported by the Pound's pairs with Antipodeans, which were experiencing some sharp moves of their own at the time.
Wednesday's CPI release, in turn, saw the GBP Index gain 0.11 pp, and its volatility rose to 0.049%. The sharpest reactions came from EUR/GBP, GBP/CHF, and GBP/JPY.
Another noteworthy event was the Euro's volatility aggregate forming an above-market-average peak. This took place at the time of the current account data release on Thursday, when the EUR Index added 0.16 pp. The sharpest reactions again came from the Asia-Pacific currencies.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}The Yen's volatility aggregate formed its most notable peak on Wednesday. While it reached the moderate value of 0.054% and was not among the highest ones fuelled by the currency's movements, the peak was noteworthy for its great divergence from the market's average. It was formed as the JPY Index added 0.20 pp at Tokyo open, and the highest values were reported by the Yen's pairs with the commodity-related currencies and the Greenback.
The most influential event for the New Zealand Dollar was the disappointing GDP release, which caused the NZD Index to lose 0.38 pp in its immediate reaction on Wednesday and additional 0.20 pp at the start of China session the next day. The two downslides put the currency's volatility aggregate to 0.109% and 0.084%, respectively.
Currency Pair Correlations
{ATTACHMENT}The most notable changes were once again observed in correlations between GBP/JPY and USD/JPY, though this time the weekly readings shifted back to the moderately positive long-term levels from the insignificant values captured by the monthly distribution. GBP/JPY correlations with GBP/USD, in turn, displayed a slight decline, with their weekly distribution showing a heavier-than-normal lower tail.
GBP/CHF correlations with GBP/USD and GBP/JPY also edged down, putting their weekly median in line with the long-term level and away from the elevated monthly reading.
Meanwhile, EUR/USD showed changes in its bond with the risky currency pairs. Thus its weekly correlation distributions with NZD/USD and AUD/USD extended the lowering observed on the monthly basis, with the former dropping its median below the significance threshold.