Market overview for August 13 - August 17 2018
[/ANNOUNCE]Currency Indexes (CI)
North America: USD, CAD
The Loonie's measure was one of the most prominent ones in the past period as it experienced both the longest rally and the sharpest downfall. The index was governed by two main drivers – the market's risk sentiment, which caused it to move in opposition with the safe-haven Yen's measure, and oil prices, which magnified the gauge's movements on Tuesday and Wednesday.
The week started with a general mood of uncertainty filling the market in the aftermath of the escalated US-Turkey crisis. The Loonie got additional pressure from continuing worries over the NAFTA, which was fueled over the weekend by President Trump's tweet stating that the deal with Mexico was "coming along nicely" and thretening to tax Canadian cars over "far too high" tariffs and trade barriers. Thus the CAD Index started the week below the previous period's close and crossed into the negative territory in the Asian session. However, the day saw the CBRT offer some relief to the investors by stating that it was ready to provide the needed liquidity for the Turkish banks, and the Loonie's gauge shot up alongside the Euro's measure in the afternoon. The fall of the JPY Index took the Loonie's measure to the +0.50% line in early Tuesday, and rising oil prices allowed the index to continue its rally even as both the Yen's and the Greenback's gauges started to gain ground. The CAD Index reached the week's absolute high of +1.18% in early Wednesday, but started to lose ground from there, weighted by the downslide in oil prices and thus losing its support against the Yen's increase, and plunged to the +0.40% mark in the afternoon. The measure held the level for almost 20 hours, failing to take advantage of another fall in the JPY Index, and it was hit by a new wave of weakening on Thursday, dropping to the +0.20% line. This brought the CAD Index on par with its EZ peer, but the Loonie's measure managed to overtake the Euro's gauge on Friday, when it enjoyed the week's sharpest 10-minute jump of 0.44 pp with the release of better-than-expected CPI data. With that the measure posted the second-highest weekly growth of 0.56%, continuing its streak of mostly positive readings which started in the end of June. The latest result allowed the CAD Index to cut its YTD loss to -0.54% – the smallest negative value it reported in 2018 so far.
Meanwhile, the Greenback's index spent the period within the ±0.50% range and ended up with a 0.39% loss, posting its first negative result after three weeks of gains. The readings, however, did little to affect the USD Index's long-term standing, as it remained second in terms of the YTD change, yielding only to the Yen's measure.
Asia-Pacific: JPY, AUD, NZD
The Asia-Pacific indexes were definitely the most noticeable ones during the week, as the Yen's and the Aussie's gauges dominated in the negative area throughout most of the period, while the NZD Index managed to snatch the leading position from the Loonie's measure at the very end of Friday's trading.
The JPY Index was the one most affected by the market's mood swings as it was zigzagging throughout the period with every little shift in the risk appetite. Ultimately, the index closed the week with the second-largest loss.
Meanwhile, the Aussie's gauge was additionally weighted by concerns over a slowdown in Chinese economy, which rose after Tuesday's data release reviled worse-than-expected retail sales and industrial production. With that the AUD Index got no support from the Yen measure's weakening on Tuesday, and took the leading position in the negative area on Wednesday. The situation was improved by lower-than-expected unemployment rate reported on Thursday, and the Aussie's gauge managed to climb back to the baseline. Ultimately, the late Friday surge pushed the index into the appreciation area, allowing it to finish the period with a positive change along with the other commodity-related gauges.
Europe: EUR, GBP, CHF
The European currencies were relatively moderate in their reactions compared to their peers. The Euro's index stood out on Monday, when it surged above its peers on the back of the CBRT assurances, gaining around 0.40 pp in 2.5 hours and thus reaching its week's highest point. The measure lost its supremacy in Tuesday morning, when another wave of Yen's weakness evoke a sharper response in the GBP Index, and the two gauges ended up moving on par during the next 24 hours. Wednesday, however, saw another change in standings as the market was not impressed by the UK CPI coming in below the BoE projections, and the Pound's measure got stuck at the -0.30% level while the EUR Index turned to break above the baseline.
As a result, the Euro's gauge was the only European to post a weekly gain, finishing the period in the appreciation area for the first time after four consecutive negative weeks. The Swiss Franc's measure got caught in some risk-on moves together with the Greenback's and the Yen's gauge on late Friday and posted the week's greatest decline, while the GBP Index, which was the only measure to remain flat at the close of the period, finished the week near the Greenback's gauge and with the fifth consecutive loss.
Volatility
Multiple rallies and downfalls observed in the currency indexes translated into relative high volatility, with all of the observed median values standing above 0.030% for the first time since the end of June.
North America: USD, CAD
The Greenback posted a solid median volatility of 0.032%, but showed no prominent peaks during the week. Meanwhile, the Loonie's median volatility was the smallest along with the Pound's, but its turbulence measure posted the week's second-highest peak. The Loonie's aggregate surged to 0.108% after the release of better-than-expected CPI, with above-average values reported by CAD/JPY, NZD/CAD, and USD/CAD.
Asia-Pacific: JPY, AUD, NZD
The Yen's turbulence measure, in turn, held above the market average for most of the period and posted the highest median since the last week of June. The Yen's highest volatility peak was formed on Wednesday amid zigzagging of the JPY Index. The highest individual volatility values were posted by the Yen's pairs with the Aussie, the Pound, and the Euro, whose currency indexes were counteracting their Japanese peer's moves.
Meanwhile, the Aussie's turbulence measure formed one of the week's three prominent volatility peaks that could be associated with macroeconomic releases. Namely, the Aussie's aggregate volatility surged to 0.061% as the AUD Index jumped in response to better-than-expected unemployment rate reported on Thursday. Admittedly, the move coincided with the JPY Index's tumble in the aftermath of Qatar promising aid to Turkey. With that the heaviest portion of aggregate turbulence came from AUD/JPY, which posted volatility of 0.114%.
Europe: EUR, GBP, CHF
Another fundamentals-related volatility peak was formed by the Pound's reaction to better-than-expected retail sales data. The currency's aggregate volatility reached 0.055%, with EUR/GBP and GBP/NZD being the only pairs to post below-average volatility.
Currency Pair Correlations
All of the correlation combinations selected for the period pointed at the strengthening of the bonds between the associated currencies, and all served to illustrate the effect the Turkish Lira's downslide had on the market. Thus all of the combinations showed the relationships between the Greenback and the Yen on one side, and the Euro, the Pound, and the Antipodeans on the other.
The greatest changes were observed in GBP/JPY correlations with EUR/USD, AUD/USD, and NZD/USD, all of which pushed their weekly medians well above the longer-term levels.
Meanwhile, AUD/USD weekly correlations with EUR/USD and GBP/USD continued the monthly patter of strengthening, pushing their distributions to the extremely strong levels. Similar changes were observed in NZD/USD correlations with GBP/USD and EUR/USD.