Market overview for December 31, 2018 – January 4, 2019: December becomes the year's worst month for the commodity-related currencies and the best for the Euro and the Yen. The CAD Index closes its worst 2018 quarter, the Yen's and the Kiwi's measures – their best.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
The Yen's, the US Dollar's, and the Swiss Franc's indexes were the only ones to finish 2018 in the green, posting yearly gains of 7.83%, 4.57%, and 3.81%, respectively. The greatest yearly declines, in turn, were reported by the Aussie's and the Loonie's measures, which lost 6.91% and 4.90%.
Meanwhile, 2019 had a turbulent start as most of the indexes suffered sharp moves on late Wednesday, with many measure thus finishing the week outside of the ±0.50% range.
{ATTACHMENT}North America: USD, CAD
The US Dollar's index was one of the moderate gainers based on the final December readings, posting a 0.61% monthly, 0.97% Q4, and 4.57% 2018 growth.
The beginning of January, however, saw the Greenback's gauge turn red as it closed the short trading week as the third-worst performer at -0.67%.
The USD Index spent most of the period within the ±0.50% range, but fell below the lower limit with Jerome Powell's speech on Friday. The Fed Chair's comments were perceived as dovish as he noted that the financial markets were "sending downslide risk signals" and stated that he was "always prepared to shift policy stance", emphasising that the balance sheet plans could be revised it the policymaker concludes that "reductions are causing problems in markets". As a result, the USD Index dropped by 0.36 pp in its immediate reaction and eventually slid to the -0.67% mark.
The Canadian Dollar's index, in turn, closed its worst month and worst quarter of 2018, losing 2.84% in December and 5.99% in Q4, where all of its monthly results were negative. The measure also became the year's second-worst performer, posting the yearly decline of 4.90%.
The first days of January, though, brought the CAD Index some respite, as the measure enjoyed the support of oil prices and late-week weakness of its US and Japanese peers. As a result, the Loonie's gauge became the period's best performer, reporting the weekly gain of 1.52% – its best reading since late June.
{ATTACHMENT}Europe: EUR, GBP, CHF
December proved to be the best 2018 month for the Euro's measure, as it posted a 1.70% monthly gain – the third-greatest result among the observed indexes. This, however, was not enough to erase the previous losses, and the EUR Index posted modest declines both in Q4 and in 2018 as a whole.
Meanwhile, the Swiss Franc's measure was a gainer on all timeframes, as it closed December reporting monthly, quarterly, and yearly growth. Together with the US Dollar's and the Yen's indexes, it formed the group of three gauges that posted all positive results and finished the year in the green.
January's first trading days, in turn, saw the Euro's and the Franc's measures move in tandem in the negative territory, and the two indexes became the period's worst performers, posting weekly losses of 1.23% and 1.14%, respectively.
The Pound's index posted modest 0.52% monthly gain in December, but still finished the fourth quarter and the year in the negative area, becoming the third-worst performer on both bases.
The new year's first trading day, too, saw the GBP Index slide below the baseline, and though the measure did spend the next two days climbing up, it ultimately failed to cross back into the appreciation area. As a result, the Pound's gauge posted a modest weekly decline of 0.38%.
Asia-Pacific: JPY, AUD, NZD
The Yen's index finished 2018 as the absolute leader, as it closed its best month and quarter, and posted the greatest gain on all three timeframes.
January's first trading day saw the pattern continue, as the JPY Index dominated over its peers throughout Wednesday and then skyrocketed late in the evening, when the Australian Dollar and the Turkish Lira were abruptly sold against the Japanese currency, causing a chain reaction in the observed measures. Thus the JPY Index added record 3.55 pp in ten minutes, surging to the week's absolute high of +5.62%. The move was immediately reversed, with the measure falling to the +3.00% line by midnight, and the index spent the rest of the week on a downtrend, ultimately losing around 0.30 pp to its Canadian peers and becoming the period's second-best performer.
The Australian Dollar's measure, in turn, became the main loser of 2018, as it reported the year's absolute worst monthly result in December and closed the year with the greatest loss of 6.91%.
The AUD Index became the main loser in January 2 crash, as well, as it fell by 3.20 pp to touch the -4.00% line. The gauge proceeded to erase the greater part of the loss and briefly fluctuated at the -1.50% mark before turning north. On Friday, the measure's recovery was helped by better-than-expected Chinese services PMI and, to a greater extent, by the Greenback's drop, which put the AUD Index above the baseline, allowing it to become the period's third-best performer.
For the New Zealand Dollar's index, the fourth quarter was the best one in 2018. The result, however, was due to the solid 4.94% gain the measure posted in November, while December became the year's worst month for the gauge. The year a whole also ended up being negative for the Kiwi's index, and it reported a moderate 1.59% yearly loss.
The first trading days of 2019 saw the NZD Index move on par with its Australian peer. Notably, though, while the measure's fall during the January 2 crash was significantly smaller, as it lost 0.71 pp in half an hour, it also enjoyed a more modest recovery on Friday. As a result, the NZD Index failed to cross above the baseline and finished the period with a 0.24% loss.
Volatility
{ATTACHMENT}With numerous sharp moves observed during the past period, weekly volatility medians stood well above the monthly readings, which were relatively strong in themselves. The most turbulent currency was the Yen with the reading of 0.053%, and the smallest volatility medians were reported by Euro and the Greenback, though those, too, stood on solid levels of 0.035-0.036%.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}The most turbulent for the North American currencies were two events from the US economic calendar – Thursday's release of ISM manufacturing PMI and Friday's Fed Chair Powell's speech.
The first event was marked by a big miss of the PMI data, which came in at 54.1 points, down from the previous reading of 59.3 and below the expected 57.7. The USD Index lost 0.14 pp in its immediate reaction, and its aggregate volatility jumped to 0.073%. The main gainers on the event were the Yen's, the Franc's, and the Euro's indexes, which added 0.37 pp, 0.24 pp, and 0.22 pp, respectively, and the Greenback's pairs with these currencies posted the greatest individual volatility readings.
The Fed Chair's comments evoke a stronger reaction, as the USD Index's sharpest move in the following fall took it down by 0.36 pp and put its volatility aggregate at 0.104%. Here the main gainers were the Aussie's, the Kiwi's, and the Pound's indexes, which jumped up by 0.30 pp, 0.23 pp, and 0.30 pp, and the corresponding components thus reported the greatest turbulence. The JPY Index, in turn, dropped by 0.35 pp, and USD/JPY volatility stood well below the aggregate.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}The past week's most turbulent event was the so-called "flash crash" that saw the JPY Index skyrocket and the AUD Index tumble on late Wednesday. The former added 3.55 pp and the later lost 3.20 pp, with their volatility aggregates jumping to 0.837% and 0.643%, respectively, and AUD/JPY component reporting extremely high turbulence of 1.594%.
Another notable event for the Aussie was Wednesday's release of the Chinese manufacturing PMI. As the data came in below the 50-point threshold, the AUD Index lost 0.21 pp, putting its volatility aggregate to 0.060%. The main gainer was the JPY Index, which added 0.14 pp, and AUD/JPY volatility reached 0.083%, well above the average value.
Currency Pair Correlations
{ATTACHMENT}With the short trading week, Wednesday's sharp moves and the subsequent developments in the Asia-Pacific currency indexes had a great impact on the weekly correlations, and the observed distributions displayed peculiar extreme tails.
The most changed was the bond between AUD/NZD and AUD/USD. Most of the pairs' correlations lay above the long-term median, and the distribution's heavy upper tail showed many values reaching extremely high levels.
Notable changes were also observed in the bond between GBP/JPY and USD/JPY. Correlations between the two pairs lay on extremely high levels after the "flash crash", thus putting their weekly median well above the long-term norm. At the same time, GBP/JPY correlations with GBP/USD reported a lower-than-usual median, with their weekly distribution having an extremely heavy lower tail.
GBP/USD correlations with AUD/USD and EUR/USD were also generally subdued, but with both distributions showing extra heaviness in both upper and lower tails. Similar pattern was also observed in EUR/USD correlations with AUD/USD and NZD/USD.