Market overview for September 10 - September 14 2018: The market's volatility falls back from the previous period's uptick. The JPY Index posts its year's greatest weekly loss, the Pound's measure reports gains for the fourth week in a row. The greatest changes in correlation distributions extend the patterns seen on the 4-week basis.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
{ATTACHMENT}All of the observed indexes opened the week near the previous period's closing levels and, for the most part, remained relatively flat. Nevertheless, the strong moves, however scarce, still managed to take most of the measure outside of the ±0.50% range.
North America: USD, CAD
After swaying within the +0.00% and +0.50% lines during the previous period, the USD Index returned to the feeble behaviour of the past month. The US Dollar's measure opened the week in line with previous Friday's highs, but spent the period below the baseline, falling deeper into the negative territory in the second half of the week and thus erasing most of the post-jobs-report gains. Coupled with the Canadian Dollar's growth, the result put the USD Index back to the third place in the QTD readings.
The USD Index unglued itself from the baseline and headed south on Wednesday, hit by the combination of disappointing PPI numbers and the reports of the US offering China a new round of trade talks, which pushed up the Antipodeans. The Dollar's measure lost 0.08 pp on the data release and then fell by 0.22 pp on the geopolitical news, crossing the -0.50% line. The index then tumbled again on Thursday, suffering the week's second-sharpest 10-minute drop of 0.32 pp and losing the total of 0.38 pp after the weaker-than-expected CPI data release. At the start of Friday's European trading the USD Index nearly touched the -1.00% line, but turned to recovery just 0.04 pp away from the mark. Upwards revision of July retail sales and fresh reports on the US-China tariffs provided additional fuel for the measure's recovery, and the USD Index crossed above the -0.50% by the end of the day, effectively erasing its CPI-related losses.
Meanwhile, the Canadian Dollar's index was the second-best performer of the week. After three periods of negative results, the CAD Index posted a solid 0.72% gain, putting its YTD decline back above the -1.00% mark and outpacing its US peer in the 26W change.
The CAD Index made its principal surge on late Tuesday, when it was reported that Canada was prepared to make concession to the US and offer its neighbour a limited access to the Canadian dairy market in order to resolve talks over the new NAFTA. The Loonie's measure added 0.25 pp with the headlines, and then jumped another 0.16 pp after the API weekly crude oil stock release showed a large drawdown. With that the CAD Index settled on the +0.80% line and held above its peers until Thursday, when it started to slowly lose its position in the absence of any additional fuel.
{ATTACHMENT}Europe: EUR, GBP, CHF
The EUR and the CHF Indexes found themselves largely opposing each other during the past week, with the single currency's measure gaining support from the US Dollar's weakness, and the Frank's gauge underperforming along with its fellow safe-havens. Thus the EUR Index spent the period among the top-three performers, while the CHF Index competed for the leadership in the negative area with its Japanese peer.
The second part of the period, however, brought some changes to the standings. In the appreciation area, the EUR Index proved to be more sensitive to the Greenback's recovery than its peers, sliding to fourth place and posting a moderate 0.29% weekly gain. The Franc's measure, in turn, started to climb up on Thursday, leaving the JPY Index far behind, and managed to finish the week only a few pp behind the Kiwi's gauge. Still, the -0.22% was the CHF Index's first weekly loss after three periods of solid gains.
Meanwhile, the Pound's measure posted its fourth consecutive weekly growth, nearing the EUR Index in the YTD readings.
The GBP Index made its definitive move on Monday, adding 0.58 pp in the week's sharpest 10-minute jump and 0.65 pp in total after the EU chief Brexit negotiator Barnier stated that it was realistic to expect a Brexit deal within 6-8 week. The surge took the measure to the +0.80% mark, and index spent the rest of the period swaying around the line with the ups and downs dictated by its peers.
Asia-Pacific: JPY, AUD, NZD
With some positive developments in all major "sentiment-affecting" topics – Brexit, US-China trade war, the NAFTA negotiations, – the JPY Index came under intense pressure in the past week. The measure spent the most of the period in a downslide, ending up with a palpable 1.41% loss after two weeks of modest gains. The result put the measure's QTD and 26W change into the negative territory, and deepened its 4W loss compared to the previous period.
The AUD Index, in turn, posted a moderate gain after reporting weekly losses for three periods in a row. The Australian Dollar's measure surged away from the baseline on Wednesday, adding 0.49 pp on US-China talks headlines. That put the index at the +0.50% line, and Thursday's Asian trading saw it jump to the +0.80% mark on the back of strong employment data. Later the AUD Index breached the +1.00% line with its US peers fall, but failed to keep the momentum and proceeded to slide down until the end of the week. On Friday, its decline was accelerated by the reports of President Trump instructing his aides to proceed with the tariffs on USD 200B worth of Chinese goods despite the US efforts to restart the trade talks. The AUD Index lost 0.30 pp, falling below the +0.50%, and ended the week near the Euro's measure.
Meanwhile, the New Zealand Dollar's measure had no specific events to lend it support, and thus remained subdued, mostly fluctuating between the baseline and the -0.50% mark. The gauge's weekly loss was moderate, but it did push its QTD change deeper into the negative territory, making the measure overtake the AUD Index as the worst performer in that time frame.
Volatility
{ATTACHMENT}The market's turbulence fell back from the previous period's uptick, with the reported volatility medians dividing the observed currencies into two groups. Thus the Euro, the Swiss Franc, the US and the Canadian Dollars were the more tranquil ones with the readings of 0.024-0.026%, while the Pound and the Asia-Pacific currencies posted moderate values of 0.029-0.031%.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}While the US and the Canadian Dollars were among the less turbulent currencies in the past week, their volatility aggregates still managed to form several prominent peaks.
Both volatility peaks fuelled by the Loonie's moves were observed on Tuesday, and were formed by the CAD Index's two-staged surge. In both cases, AUD/CAD and NZD/CAD posted muted volatility, while the situations with the sharpest individual reactions differed slightly between the jumps. Thus the reported developments in the NAFTA negotiations had the greatest effect on GBP/CAD, but the oil-price-moving API release saw the largest volatility spikes come from USD/CAD and CAD/JPY.
The US Dollar's principal volatility peak was formed by the currency's tumble in response to the disappointing CPI release. The Greenback's aggregate reached above the 0.080% line, while its NZD/USD and AUD/USD components spiked to 0.130% and 0.122%, respectively.
The currency's post-retail-sales jump was more moderate, and its aggregate only rose to the 0.045% mark. Most of the fuel for the turbulence again came from the Antipodeans, though this time GBP/USD also posted above-average volatility as the Pound remained vulnerable amid reports of the Labour party planning to vote the Brexit deal proposed by the PM.
Europe: EUR, GBP, CHF
{ATTACHMENT}While the scale of the GBP Index made it difficult to discern the Pound-specific events among the general market moves, the currency's volatility measure highlighted its individual drops and jumps.
Naturally, the greatest surge of the GBP Index also translated into the highest volatility peak as the Pound's aggregate turbulence measure spiked to 0.141%. The next two spikes, however, were harder to explain with a single event and seemed to be the results of the general instability of the Pound.
On Tuesday, the GBP Index added 0.10 pp after the employment data release, but then proceeded to lose 0.25 pp, thus pushing the Pound's volatility aggregate first to 0.046% and then to 0.075%.
On Wednesday, the Pound was weighted on by the reports of potential leadership challenge to PM May, which followed the meeting of the European Research Group for the Conservative party. At 11:00 GMT, the GBP Index dropped 0.16 pp, and its volatility aggregate rose to 0.053%.
In all the mentioned overturbulence instances, the sharpest reaction were reported by GBP/JPY and GBP/USD, but the BoE-related spike defied the pattern. As the policymaker delivered no major surprises, but did note that that there were "indications <…> of greater uncertainty about future developments in the withdrawal process", the GBP Index lost 0.18 pp, raising the Pound's volatility aggregate to 0.046%. Here GBP/USD and GBP/USD reported the smallest volatility readings, while the greatest turbulence was observed in GBP/AUD, EUR/GBP, and GBP/NZD.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}Again, the most prominent volatility peaks for the Asia-Pacific currencies were reported by the Australian Dollar, and the majority of those were related to the US-China trade war headlines.
The highest peak, which was also the week's second-highest overall, was formed by the AUD Index's surge after the positive reports on the trade talks. The Aussie's volatility aggregate jumped to 0.118%, with higher-than-average readings unsurprisingly reported by the pairs with the safe-havens.
Friday's fall caused a more moderate volatility spike of 0.073%, and here, much like in the case with the day's US Dollar volatility peak, a sharp reaction also came from the pair with the Pound.
Thursday's peak was two-headed, as the AUD Index first added 0.28 pp on the employment numbers and the lost 0.12 pp after the Chinese data release. The first jump pushed the currency's volatility aggregate to 0.057%, but the combined effect pf the moves lifted it further to 0.059%.
Currency Pair Correlations
{ATTACHMENT}The greatest changes in correlation distributions observed in the past week served to extend the patterns seen on the 4-week basis and take the bond strength measure further away from the long-term norm and into the elevated territory.
Such was the case with the correlations between EUR/USD and GBP/JPY, and AUD/CAD and NZD/USD, both of which lifted their weekly medians above the 0.50-point line. Similar strengthening was observed in AUD/CAD correlations with AUD/USD, though this weekly correlation distribution also showed a heavy insignificant tail, indicating that the shift in the strength of the bond between the two pairs was not adamant.
Meanwhile, correlations between GBP/CHF and GBP/USD also reported a rise in the median value, but formed a two-headed distributions, with one peak marking an extremely high level and the other standing in line with the long-term norm.
Another noteworthy combination was AUD/USD and NZD/USD, whose normally strong correlations appeared even stronger in the past week as their weekly distribution cut its lower tail short to indicate almost no value below the 0.50-point benchmark.