Market overview for April 8 - 12, 2019: Volatility stands on the lowest levels since the beginning of observations. The Pound's index spends its calmest week since November, the Greenback measure's YTD change returns to the negative territory.
[/ANNOUNCE] {ATTACHMENT}Currency Indexes (CI)
The past week was unusually slow for the observed currencies, as their indexes mostly kept within the ±0.50% range and made very few strong moves. Still, the depreciation area was clearly dominated by the safe-havens, with the Yen's, the Swiss Franc's, and the US Dollar's measure becoming the only gauges to post negative weekly changes. Moderate positive results were reported by the Aussie's and the Euro's indexes, while the main mover of the past months, the GBP Index, posted a near-zero change.
{ATTACHMENT}North America: USD, CAD
After two periods of moderate growth, the US Dollar's index spent the past week below the baseline and posted a modest 0.32% loss, becoming the third and last measure to end up with a negative result. The decline erased the bigger part of the previous period's gain, leaving the USD Index's MTD change near zero and pushing its YTD reading back into the negative territory.
The Canadian Dollar's index was boosted by oil prices on Monday, rallying close to the +0.50% line and thus taking the leading position. The measure held the level until Tuesday afternoon, but from there gradually slid down to the baseline, eventually posting a modest below-0.20% weekly gain for the second time in a row. The result brought no major changes to the CAD Index's long-term standings, but did serve to strengthen its positions.
{ATTACHMENT}Europe: EUR, GBP, CHF
The Swiss Franc's index became the past period's main loser as it spent the week below the baseline alongside its US peer and finished Friday on par with the Yen's measure, thus sharing the worst performer's position with the Japanese gauge. The result marked the second consecutive negative week for the CHF Index, making it the third-worst performer on the MTD and the second-worst performer on the YTD bases.
The Euro's index, in turn, posted its second weekly growth in a row and became the period's second-best performer. The moderate 0.51% gain allowed the measure to cut its YTD decline above the -2.00% mark and thus take the third-worst performer's place, outpacing its Swiss and Japanese counterparts after three periods of anti-leadership.
The most important event in the EU economic calendar was the ECB rate announcement scheduled for Wednesday, and the EUR Index held near the +0.20% line ahead of the release. The announcement itself brought no surprises and left the Euro's measure largely unchanged, but the following press conference saw gauge turn south. As the ECB President Mario Draghi waned that the policymaker would not "tolerate too low inflation" and that the risks have "tilted to downside", and added no certainty by saying that it was "too early to discuss terms of TLTRO" and that the analysis of negative rates' effects on the bank profits was ongoing, the EUR Index lost 0.31 pp in 50 minutes, briefly dropping below the baseline. From there, however, the measure proceeded to slowly but steadily climb up, reaching the +0.50% line on Friday and managing to hold the level throughout the day.
In a stark contrast to the past two months, the Pound's index finished the period with a near-zero change, barely deviating from the baseline during the week.
Even though the past week was to be among the decisive ones in the Brexit saga as the EU27 summit loomed over the UK government, with PM May failing to conduct productive negotiations with the opposition, and the European official voicing some stern remarks on the possibility of further delay, the GBP Index has had its calmest period since November. In an almost disappointingly blunt turn of events, Wednesday's announcement of a "Flextension" until October 31 seemed to have little to no effect on the market, and the Pound's measure remained unmoved from the baseline until the end of the week.
Asia-Pacific: JPY, AUD, NZD
The Yen's index spent most of the period above the baseline as it gained two strong pushed from the Pound's fall on Tuesday and the Euro's drop on Wednesday, whose combined effect brought it near the +0.50% line and to the leader's position. The second half of the week, however, saw the JPY Index go into a downslide, and the measure finished the period sharing the main losers position with its Swiss counterpart.
The result was the third consecutive negative reading for the Yen's index, and it pushed the measure's YTD decline below the -2.50%, making it the worst performer on the long-term basis.
The Australian Dollar's index became the period's best performer, posting its third consecutive weekly gain and standing out as the only measure to properly break out of the ±0.50% range. The result pushed the gauge's YTD growth above the +2.00% mark for the first time this year, solidifying its position as the third-best performer on that basis.
The AUD Index was also one of the few measures to show clear reactions to macroeconomic events. The measure feebly, but surged by 0.24 pp during the RBA Deputy Governor Debelle's speech on Wednesday, as the official noted that the "labour market has been surprisingly strong" and that "leading indicators of employment remained solid". With the additional fuel from its US peer's weakness, the AUD Index rallied to the +0.50% mark, outpacing its counterparts.
The next day, however, saw the Greenback's gauge turn to recovery, and the Aussie's measure turned south, nearing the baseline as it dropped by 0.18 pp with the early Friday release of the RBA bi-annual Financial Stability Review, which cited downgraded growth forecasts and "risks of a sharper downturn", and added that "banks might have to further raise capital ratios". However, positive Chinese data set off another rally, and the European session saw the AUD Index break above the +0.50% line and settle at the +0.75% level.
The New Zealand Dollar's index spent the week fluctuating around the baseline, but ended in the positive area, getting a boost from the risk sentiment change on Friday. With that the measure posted a modest 0.18% gain, finishing the period on the same side with its Australian counterpart for the first time in four weeks.
Volatility
{ATTACHMENT}The past week was the most tranquil one since the beginning of records in January 2018. All of the observed currencies, with the exception of the Pound, reported volatility medians on their absolute lowest levels, and even the British currency, which remained steadily overturbulent since December, posted a reading below the 0.030% mark.
{ATTACHMENT}Europe: EUR, GBP, CHF
{ATTACHMENT}The week's highest volatility peak was observed on Tuesday and was, not for the first time, related to Brexit speculations. At first it was reported that the German Chancellor was willing to put a five-year limit on the Irish backstop, with the GBP Index jumping by 0.22 pp on the news and prompting the Pound's turbulence measure to 0.055%. Then half an hour later Germany denied the reports, sending the index down by 0.16 pp and pushing the volatility to 0.066%.
Later in the day, the UK Labour party member John McDonnell said that there was no progress made in the negotiations between the government and the opposition, prompting another 0.15 pp drop in the GBP Index and seeing the Pound's volatility aggregate return to the 0.060% level. In both cases, above-average volatility was reported by GBP/JPY and GBP/USD.
As the week was generally extremely tranquil, the small 0.046% volatility peak fuelled by the EUR Index 0.15 pp drop at the time of the ECB press conference also managed to stand out in the overall picture. Here, too, the main contributors to the turbulence were the pairs with the Yen and the US Dollar.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}The AUD Index's 0.24 pp surge at the time of the RBA Assistant Governor's speech prompted the week's second-highest volatility peak. In this case, the average was dragged down by the AUD/NZD component, so almost all of the other pairs posted greater values, but the highest readings were still reported by AUD/USD, AUD/JPY, and GBP/AUD.
Currency Pair Correlations
{ATTACHMENT}Correlations between the observed currency pairs showed little shifts from the long-term levels in the past period.
The only major exception were the correlations between GBP/USD and EUR/USD, whose weekly values remained subdued, standing in line with the monthly distribution and mostly below the long-term median.
Meanwhile, GBP/CHF correlations with GBP/JPY and GBP/USD, which held on extremely high levels in the past month, edged down towards the six-month median, with the former also displaying a heavy insignificant tail.