Market overview for December 3 – December 7 2018: Market's volatility picks up to elevated levels. The Franc's and the Yen's indexes share the best performer's position, the Aussie's gauge posts its greatest weekly loss in the year so far, and the Loonie's measure reports both the week's greatest jump and the sharpest fall.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
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North America: USD, CAD
The US Dollar's index was among the measure most influenced by the agreement reached by Presidents Trump and Xi on December 2, as it opened the week 0.32 pp below the preceding Friday's close. Afterwards, the measure spent the period within the ±0.50% range and ended up in the appreciation area with its European and Japanese peers, posting a marginal weekly gain of 0.27%.
The Canadian Dollar's measure posted a weekly loss of 0.42%, thus reporting its sixth negative result in a row. With that the index retained its long-term standing, posting the greatest QTD loss and the second-greatest YTD decline, with a continuous near-draw with the Pound's measure.
The CAD Index opened the week 0.20 pp above the preceding Friday's close and broke above the +0.50% line at the start of the New York session, when President Trump twitted that the US relations with China "had taken a big leap forward" and the US Treasury Secretary Mnuchin stated that there was "clear commitment from President Xi to open markets to American companies". However, the Loonie was weighted down greatly by the worries over the OPEC meeting and the subsequent decline of oil prices, and so the CAD Index started to slide down soon after reaching its week's high. The greatest hit to the measure came on Wednesday, when the BoC released a dovish statement noting that recent data suggested less momentum in economic growth going into Q4, and that there was more room for non-inflationary growth. The CAD Index lost 0.64 pp in the week's largest 10-minute drop and proceeded to decline by the total of 0.80 pp in the forty minutes following the release, breaking below the -0.75% line. After that the fluctuated around the -1.00% mark and seemed poised to become the period's second-worst performer, but was pushed upwards by better-than-expected employment change and unemployment rate data released on Friday. The index enjoyed the week's greatest 10-minute jump and added 0.59 pp in twenty minutes, reaching the -0.25% mark, and then neared the baseline in the next hour, getting additional fuel from the reports of the OPEC+ reaching a deal to cut oil production by 3% from all countries except Iran, Venezuela, and Libya. The momentum, however, did not last, and the CAD Index failed to cross into the positive area, finishing the period among the three losers.
{ATTACHMENT}Europe: EUR, GBP, CHF
While the Swiss Franc's measure opened the week 0.27 pp below the preceding Friday's close, and the Euro's measure was the only gauge to start the period in a neutral stance, both index took similar paths in the following trading days. Spending Monday and Tuesday on the baseline, the measures turned north on Wednesday and proceeded to climb up till the end of the week, finishing among top three performers.
The CHF Index reported a solid 1.27% weekly gain, sharing the first place with its Japanese peer, and thus improved its long-term reading by 1.00 pp. The Euro's measure, in turn, fell behind with 0.79% growth and remained among the worst performers on QTD and YTD basis.
The Pound's index remained highly volatile, but was constricted in the ±0.50% range during the period, ultimately posting a near-zero weekly gain. As the measure opened the week 0.21 pp below the preceding Friday's close, the result served to worsen its long-term readings, pushing its QTD and YTD changes further into the negative area.
The GBP Index retained the previous period's pattern of making sharp moves in the beginning of European trading, and its first jump-and-downslide open took it to the -0.50% line on Monday. On Tuesday, the measure surged back to the baseline with the combined effect of the General Advocate for the European Court of Justice publishing an opinion stating that the UK could unilaterally revoke Article 50, and the BoE Governor Carney testifying about the Withdrawal Agreement before the Treasury Select Committee. The GBP Index's rally, however, was cut short by the renewed strength of its US and Japanese peers, and the measure bounced back into the negative territory. Later in the day it was reported that the UK ministers were voted in contempt of the Parliament over refusing to publish the full text of the legal advice given to PM May by the Attorney General Geoffrey Cox. The news pushed the GBP Index down to its week's low, but the next day's European open saw the measure surge again, and the Pound's gauge settled in the positive area by the end of the day.
Asia-Pacific: JPY, AUD, NZD
The tables turned again for the risky Antipodeans and their safe-haven Japanese peer. While originally the Yen's gauge opened the week 0.45 pp below the preceding Friday's close and the AUD and NZD Indexes added 0.70 pp and 0.33 pp, respectively, the period itself saw the JPY Index climb well into the positive area, while the Antipodeans spent most of the time in a downtrend. As a result, the JPY Index posted its greatest weekly gain since August, and the Aussie's and Kiwi's measures suffered the period's greatest declines.
The AUD Index, however, was hit notably stronger than its Kiwi counterpart. Starting the week with the greatest jump among the observed measures, it quickly turned to depreciation, sliding to the -0.50% line by Wednesday Tokyo open. There the gauge suffered the week's second-greatest 10-minute drop as it lost 0.52 pp with the release of worse-than-expected 3Q GDP data. The move put the index at the -1.00% mark, and Thursday saw it decrease accelerate with additional disappointing data coming in form of the trade balance release. The AUD Index preceded to decline until the very end of the period, posting its greatest weekly loss in the year so far. The result knocked its QTD change from the second-greatest to the fourth, and put its QTD decline back near the -5.00% mark.
Volatility
{ATTACHMENT}After two periods of subdued turbulence, the market's volatility picked up again, with the observed weekly medians standing in line with or above the monthly readings.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}The BoC rate statement that knocked the CAD Index down by 0.64 pp in its immediate reaction proved to be the period's most turbulent event, with the Loonie's volatility aggregate reaching the week's absolute maximum of 0.158%. For the Canadian Dollar's turbulence measure it was also the highest level reached since a 0.240% peak fuelled by the May 30 statement. The sharpest reactions came from the pairs with the Europeans – GBP/CAD, EUR/CAD, and CAD/CHF.
The Loonie's turbulence measure also formed the period's third-greatest volatility peak, which was fuelled by the CAD Index's surge and the USD Index's tumble in the aftermath of the two country's employment data releases. The CAD Index gained 0.49 pp, and the USD Index lost 0.28 pp in their immediate reactions, and the currencies' volatility measures jumped to 0.119% and 0.075%, respectively. Another two currencies to make big moves at the time of the event were the Pound and the Yen, whose indexes both lost 0.16 pp, so GBP/CAD and CAD/JPY were also the pairs to post above-average volatility readings.
Europe: EUR, GBP, CHF
{ATTACHMENT}Among the European currencies, the Pound was once again the only one to produce notable volatility peaks. The GBP Index retained the pattern of starting the European session with sharp moves, so its turbulence measure rose above that of its peers in the mornings of all trading days. However, the most prominent peak was formed on Tuesday, when volatility was additionally fuelled by the ECJ opinion release and the BoE Governor's testimony. As the GBP Index added 0.32 pp in response to the first event, the currency's volatility jumped to 0.087%. The index proceeded to pull back by 0.13 pp, and then added 0.17 pp in its immediate reaction to Carney's speech, which put the Pound's volatility to 0.093% – the week's high for the UK currency.
Later the same day, the GBP Index's decline was accelerated by the reports of the ruling on the government being in contempt of the Parliament, and the downslide's sharpest drop of 0.18 pp was marked by a 0.062% volatility peak.
In all cases, the highest individual readings were reported by GBP/USD.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}Monday Asian open proved to be the most turbulent time for the Asia-Pacific currencies, as all three volatility aggregates reported elevated levels while the currency indexes were zigzagging in the aftermath of the weekend US-China developments. Thus Tokyo open saw the Aussie's and the Kiwi's indexes drop by 0.16 and 0.13 pp, respectively, while the Yen's gauge added 0.13 pp. Chinese trading, however, brought a reversal, with the Antipodeans gaining 0.10-0.11 pp, and the JPY Index losing 0.10 pp. The moves kept the volatility aggregates near the 0.050% line, and for the Antipodeans the highest individual readings were reported not only by the pairs with the Yen, but also with their US peer.
The AUD Indexes Wednesday and Thursday tumbles also prompted the currency's volatility aggregate to jump well above the market's average. The former peak was also the period's second-highest, with the Aussie's turbulence measure reaching 0.127%, and the sharpest individual reactions coming from AUD/USD and, notably, AUD/NZD.
Currency Pair Correlations
{ATTACHMENT}Most of the correlations selected for the period were fell in one of the two groups – those describing the relationship between the Pound and the safe-haven, and those concerning the Europeans and the Antipodeans.
The most notable combination in the first group was GBP/JPY & USD/JPY, whose weekly correlations extended the weakening seen in the monthly distribution. Moreover, the weekly distribution displayed an extremely heavy lower tail, with a notable portion of value thus approaching significant negative levels.
Meanwhile, GBP/CHF correlations with GBP/USD and GBP/JPY retained the elevated levels seen in the monthly distributions, while correlations between GBP/JPY and GBP/USD shifted down to the long-term readings.
GBP/USD correlations with AUD/USD and NZD/USD extended the pattern of weakening, with both weekly medians falling below the significance threshold of 0.50 points. Weakening was also observed in NZD/USD and AUD.USD correlations with EUR/USD, though in this case the tendency was new, unseen in the monthly readings.
Aside from the two groups, a notable shift was observed in correlations between USD/CHF and USD/JPY, whose weekly distribution pushed its median above both medium- and long-term levels and into the territory of moderate strength.