Market overview for December 10 – December 14 2018: Volatility picks up further. The Antipodeans finish the week on the opposite sides of the baseline. The USD Index posts its highest YTD gain so far, the GBP Index – its greatest YTD loss.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
The past week was notable for numerous rallies and downslides, with the Pound's index returning to the spotlight amid Brexit developments and the Antipodeans being pushed around by the market's mood.
{ATTACHMENT}North America: USD, CAD
The US Dollar's index extended its previous gains, posting a solid 0.70% weekly growth and becoming the period's best performer. The result put the measure's YTD change above the 5.00% mark for the first time in 2018. The gauge's 4W change climbed back into the positive area after four weeks of negative readings.
The Canadian Dollar's index spent the period within the ±0.50%, but did end up closing the week in the positive area, thus posting its first weekly gain after six weeks of negative readings. The result, however, was not enough to notably affect the measure's long-term change, and the CAD Index remained the worst performer on the QTD basis. On the YTD scale, it moved up to the third-worst performer's position, but only due to its UK peer's decline.
{ATTACHMENT}Europe: EUR, GBP, CHF
The Euro's index posted a modest weekly loss of 0.21%, technically becoming the period's third-worst performer, but actually closing the week 0.20 pp above the Pound's gauge and thus leaving the main losers well behind.
The Swiss Franc's index spent most of the week in the positive area, but slid below the baseline in the last hours of Friday's trading, ending up with a modest 0.16% loss. Much like for its EMU peer, the result did little to affect the measure's long-term standings, and the CHF Index retained its mildly negative QTD and moderately positive YTD readings.
The Pound's measure continued the pattern of alternating results it has been displaying in the past month, this time becoming the period's second-worst perform with a moderate weekly loss of 0.42%. The result pushed the index's YTD change below the -3.00% mark and thus to its worst reading in the year so far, and made it the worst performing gauge on the 26W basis.
The GBP Index opened the week 0.21 pp below the preceding Friday's close and suffered a major downslide in Monday's European trading. The measure first lost 0.49 pp in the hour after it was announced that there would be an emergency conference between the Cabinet ministers and Theresa May, with speculations rising that the PM would postpone the meaningful vote on Brexit. Despite the government spokeswoman stating that the meeting would only serve to update the ministers and that the vote would go ahead as planned, the rumours spread in the media, and by 14:00 GMT the GBP Index extended its downslide by another 0.45 pp. That left the measure near the -0.75% line, and it managed to regain some ground ahead of the PM's statement scheduled for 15:30 GMT. In her speech, however, PM May confirmed that there was deference of the vote in the House of Commons and announced that she would go to emergency talks in Brussels. As a result, the GBP Index lost 0.84 pp in forty minutes, briefly dropping below the -1.25% mark and stabilising at the -1.00% line.
On Tuesday, the Irish foreign minister suggested that the EU might issue an additional statement on the backstop to reassure the UK, and the GBP Index started the European trading with a 0.41 pp recovery, stopping just below the -0.50% ahead of the employment data release. The measure zigzagged after the mixed release and turned south again, falling to the week's absolute low of -1.50% after multiple reports stated that the enough letters of no-confidence have been submitted to trigger a leadership contest against the PM.
The reports were confirmed on Wednesday morning, but after PM May stated that Article 50 would be delayed or cancelled if she losses the votes, the GBP Index surged, posting the week's sharpest 10-minutes jump of 0.28 pp. The rally continued throughout the day, and the Pound's measure stood at the -0.50% line ahead of the result announcement. At the event, the GBP Index zigzagged, first jumping up by 0.27 pp and then dropping by 0.48 pp, and spent the rest of the week fluctuating between the -0.25% and -0.50% lines.
Asia-Pacific: JPY, AUD, NZD
After s strong gain reported in the previous period, the Yen's measure opened the week 0.14 pp above the preceding Friday's close, but spent the next four days sliding deeper into the negative area. It reached the -0.75% line by Friday open, but there, pushed by renewed risk aversion and getting some additional fuel from strong manufacturing PMI numbers and the Kiwi's dive, the JPY Index surged up to close the day with a near-zero loss.
For the first time since late October, the two Antipodeans finished the period on the opposing sides of the baseline. The NZD Index opened the week 0.30 pp above the preceding Friday's close and zigzagged in the first hours of Asian trading, but afterwards the two measures were climbing up largely in sync with each other until early Wednesday. There the SUD Index hit its week's ceiling of +1.00% and proceeded to fluctuate between that level and the +0.75% line until early Friday. The Kiwi's gauge, in turn, stopped at the +0.75% mark and experienced a much sharper downslide than its counterpart, falling all the way to the baseline.
The principal moves, however, were made in Friday's Asian trading. Both measures were pressured by the risk-off sentiment and the Greenback's advance, but the Kiwi's gauge received an additional hit from the RBNZ as the policymaker announced it was consulting on a proposal to raise the required capital level for banks. The sharpest wave of decline for the NZD Index came after 01:00 AM GMT, when the measure lost 0.41 pp in half an hour. All in all, the Kiwi's measure lost 0.80 pp in the first two hours after Tokyo open, ending up at the -0.75% line. Meanwhile, the Aussie's gauge was weighted down by disappointing Chinese data, but its downslide erased 0.50 pp, allowing the Greenback's measure to take the leader's position, but leaving the AUD Index in the positive area.
Volatility
{ATTACHMENT}The market's turbulence picked up more steam from the previous period's already elevated levels. The Euro was the only major to not push its volatility median above the 0.030% threshold, while the Pound's, the Kiwi's, and the Aussie's measures continued to signal extreme changeabiity.
{ATTACHMENT}Europe: EUR, GBP, CHF
{ATTACHMENT}Unsurprisingly, the Pound's volatility aggregate was the one to form most of the period's prominent peaks. In most of the cases, the sharpest reactions were reported by GBP/USD, GBP/JPY, and GBP/NZD, while EUR/GBP kept its volatility well below the average. A notable exception was the rebound after the announcement of the no-confidence vote results, when the highest volatility was posted by GBP/USD, GBP/CAD, and GBP/AUD, while the lowest values were reported by GBP/JPY and GBP/NZD.
Notably, the Euro's movements also fuelled some above-average volatility peaks. The first such occurrence was observed on Thursday, when the ECB President announced downward revisions to inflation and growth outlooks and stated that the balance of risks was moving to the downside. The EUR Index lost 0.26 pp during the vent, with the first 10-minute drop amounting to 0.15 pp and pushing its volatility aggregate to 0.048%.
Another peak marked the EUR Index's Friday's downslide in the aftermath of disappointing French and German PMI release. The measure lost a total of 0.41 pp, with the sharpest drop of 0.15 pp coming in the immediate reaction to the Germany's data and pushing the currency's volatility aggregate back to 0.048%.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}The Asia-Pacific currencies formed several volatility peaks during the week, but the most prominent ones were observed on Friday, when the NZD and the AUD Indexes suffered their greatest declines. There the Kiwi measure's 0.21 pp 10-minute drop put its volatility aggregate at 0.071%, while the Aussie gauges 0.20 pp decline prompted a 0.064% high peak. In both cases, the sharpest reactions came from the pairs with the Yen and US Dollar, while for the Aussie's peak high turbulence was also reported by AUD/NZD, as the NZD Index recorded a positive change when its counter dropped.
Currency Pair Correlations
{ATTACHMENT}The most prominent developments were once again reported by the pairs with the Pound and the safe-havens.
Thus the greatest changes were observed in the correlations between GBP/JPY and USD/JPY, whose weekly distribution reiterated the monthly pattern and showed that most values were insignificant during the week.
Meanwhile, GBP/CHF correlations with GBP/USD, GBP/JPY, as well as GBP/JPY correlations with GBP/USD continued to strengthen, with their weekly medians climbing further above the long-term readings.
GBP/USD correlations with EUR/USD, in turn, shifted further down, with the similar pattern observed in EUR/USD correlations with AUD/USD, NZD/USD, and GBP/USD. An even greater degree of weakening was reported by weekly correlations between AUD/USD and GBP/USD.