Market overview for September 17 - September 21 2018: The market's volatility edges up, but remain in line with the past month's levels. The Yen's and the US Dollar's measures are the main losers, Brexit developments send the GBP Index tumbling after a month of growth, new US tariffs have a limited impact, the Kiwi's gauge become the leader after a better-than-expected GDP release.
[/ANNOUNCE] {ATTACHMENT}The past week saw continuation of many of the previous period's pattern, with the Yen's and the Dollar's indexes leading in the negative area, the Aussie's measure resuming its ascent, and the Pound's gauge being driven by Brexit headlines.
Currency Indexes (CI)
{ATTACHMENT}North America: USD, CAD
The US Dollar's index spent its second consecutive week below the baseline, closing the period at -0.90% and thus posting its greatest weekly loss since mid-February. The continued decline put the measure's QTD change near zero, while its 4W loss was extended from -0.33% to -0.67%.
The Canadian Dollar's measure, in turn, showed limited activity, remaining within the ±0.50% range throughout the week. As a result, the CAD Index posted minor weekly growth of 0.15%, which nevertheless allowed it to push its 4W change into the positive territory.
At the start of the week, the Lonnie's measure slid below the baseline along with its US peer, but joined the Aussie's measure in its growth on Tuesday. Additional fuel for the Canadian's recovery came from the manufacturing sales release, which showed better-than-expected July growth of +1.1% being revised further up to +1.3% and pushed the CAD Index up by 0.12 pp. Still, the Loonie's measure remained on more moderate levels than its Australian counterpart, and so neared the end of the week at the baseline. In Friday afternoon, however, it managed to jump into the appreciation territory as it added 0.24 pp against the background of the Pound's drop and with some support from another data release. Here August CPI growth was reported in line with forecasts at -0.1% after the greater-than-expected +0.5% July reading, while August core retail sales surpassed expectations and July growth was revised up from -0.1% to +0.1%.
{ATTACHMENT}Europe: EUR, GBP, CHF
After posting the greatest gain in the previous period, the Pound's index spent most of the past week swaying between the baseline and the +0.50% mark, looking to be posed for reporting its fifth weekly growth in a row. Friday, however, proved to be a game changer, and the measure tumbled to post the week's third greatest loss.
As usual, the GBP Index was governed primarily by the Brexit headlines. The measure went sharply up on Thursday, when the market seemed to expect the Brexit talks in Salzburg to offer support to the UK PM's position. The index rose from the baseline to the +0.75% mark in the first six hours of European trading, but then the post-summit press conference caused the ascent to falter. As the EU rejected Theresa May's Chequers proposal, the GBP Index flattened out on the +0.50% line, and proceeded to erase all of its Thursday gains during Friday's morning trading. Around noon the index fell below the baseline as it was reported that the Prime Minister would make a statement, and when May announced that the Brexit talks were in a deadlock and that the UK "must and will prepare <…> for no deal", the Pound's measure tumbled to the -0.75% line, losing 0.43 pp in the week's sharpest 10-minute fall.
Meanwhile, the Euro's and the Swiss Franc's measures alternated between being weighted by their commodity-related peers and gaining fuel from the Yen's and the Greenback's weakness. The CHF Index proved to be more sensitive to its counterparts' movements as it showed both deeper downslides and stronger rebounds, and also got a greater push from the Pound's tumble on Friday, which allowed it to return to the positive territory. The two measures posted close results of +0.34% and +0.25%, with the EUR Index outperforming its Swiss peer on the MTD basis, but the Franc's gauge continuing to dominate on other long-term intervals.
Asia-Pacific: JPY, AUD, NZD
Much like its US peer, the Yen's measure spent its second consecutive week below the baseline, again posting an over 1.40% loss. The result pushed the index to report the period's greatest QTD and 4W declines, and to drop its 26W change to the weakest level in the year so far.
Meanwhile, the Australian and the New Zealand Dollars' measures posted the week's greatest gains, with the former leading its second positive period in a row, and the latter reporting its first weekly growth after three periods of negative results.
The AUD Index was off to a rough start as it fell below the baseline after the New York close on Friday, when President Trump announced 10% tariffs on USD 200B of Chinese imports. However, as the market digested the news and the details of the imposed taxes, the tumble turned to rapid recovery, and the Aussie's measure reached the +0.50% line by the European open. From there the index continued to gain ground until it stabilised near the +1.00% on Thursday.
The Kiwi's measure, as usual, had a more muted reaction to the US-China trade headlines and the shift in sentiment, but instead made its major move after the GDP release on Wednesday. As the data came in better than expected, the NZD Index made the week's sharpest 0.47 pp jump, adding the total of 0.64 pp on the event and catching up with its Australian peer.
Volatility
{ATTACHMENT}The market's turbulence edged up in the past week, with most of the observed volatility medians adding around 0.002 pp to their previous readings, though still standing in line with moderate 4W levels. The greatest change was reported by the Swiss Franc's measure, which grew to stand 0.003 pp above the monthly value, while the highest absolute values were again reported by the Aussie, the Yen, and the Kiwi.
{ATTACHMENT}North America: USD, CAD
{ATTACHMENT}The only noticeable volatility peak for the North-American currencies was formed by the Canadian Dollar's measure on Wednesday, and even that one was largely overshadowed by the Pound's turbulence.
Still, the Loonie's aggregate volatility made a two-step jump to 0.066% as the CAD Index lost 0.25 pp with reports of the US and Canada being unlikely to make a NAFTA deal by the end of the week, and then erased the losses in the next half an hour with a rebound fuelled by the post-EAI growth in oil price. The first move saw the greatest turbulence come from GBP/CAD, whose volatility reached 0.075%, while in the second notable above-average readings were posted by GBP/CAD, CAD/JPY, and USD/CAD.
Europe: EUR, GBP, CHF
{ATTACHMENT}The GBP Index's jumps and drops fuelled four noticeable volatility peaks in the past week. The greatest one, and the second-highest in the period as a whole, was formed by the Pound's tumble on Friday. The currency's aggregate volatility reached 0.109%, but the sharpest reactions came from the safe-haven GBP/JPY and GBP/USD, and GBP/CAD, which was additionally affected by the Loonie's post-CPI surge.
Only slightly lower at 0.106% stood the peak that was prompted by the reports of the UK PM rejecting the EU's revised Irish border proposal and the subsequent 0.36 pp fall of the GBP Index. Here the greatest volatility was reported by GBP/JPY with 0.136%, with GBP/USD and GBP/CHF falling behind with the readings of 0.119% and 0.112%, respectively. Another Brexit-related event, the Salzburg summit press conference, caused a more modest 0.061% spike of the Pound's aggregate turbulence measure. Notably, here the highest individual values were reported by GBP/NZD and GBP/CAD.
Finally, the release of the UK inflation data prompted the GBP Index to gain 0.28 pp and pushed the currency's volatility to 0.076%. Again, the sharpest reactions came from GBP/JPY and GBP/USD.
On a rather rare occasion, one of the week's noticeable volatility peaks was formed by the Swiss Franc's measure. The spike was fuelled by the CHF Index's zigzagging at the start of the European trading, when the measure gained 0.34 pp and then lost 0.11 pp all in half an hour. The jump put the Franc's aggregate volatility to 0.063%, and the subsequent fall pushed it further to 0.068%.
Asia-Pacific: JPY, AUD, NZD
{ATTACHMENT}Most of the event that fuelled the Asia-Pacific currencies' turbulence affected two or even all three of them in similarly great measures.
The week's first volatility peaks were formed as the AUD Index fell 0.11 pp and the JPY Index jumped 0.13 pp after the announcement of the new US tariffs on Chinese goods. Interestingly, the Yen's increase came with a ten-minute delay, but both of the moves pushed the associated aggregates to 0.041%.
The aftereffects observed in the subsequent trading also had their greatest impact on the two currencies at different times, and while the Aussie's volatility reported the highest peak during the Asian session, the Yen's turbulence spike at the European open, when the JPY Index added 0.31 pp.
Finally, Premier Li's comments stating that China would never rely on depreciating the Yuan to stimulate exports, had a visible effect on all of the Asia-Pacific currencies. The JPY Index lost 0.11 pp and the currency's volatility jumped to 0.039%, while the Aussie and the Kiwi reported the currency index growth of 0.23 pp and 0.14 pp and volatility of 0.062% and 0.050%, respectively.
Among individual events, the release of the New Zealand GDP produced the week's highest volatility peak of 0.116%, with the sharpest reaction somewhat atypically coming from AUD/NZD.
In turn, the Aussie pushed its volatility to 0.050% after the S&P raised Australia's outlook from "negative" to "stable" on Friday.
Currency Pair Correlations
{ATTACHMENT}The past week saw little changes in the bonds between the observed currency pairs, with most of the selected combinations containing the Pound's crosses.
Thus the only two correlation distribution to report considerable strengthening were the once describing GBP/JPY relationship with EUR/USD and GBP/USD. The former showed an extension of the monthly pattern of strengthening as it shifted its mass further above the 0.50 points mark, while the latter kept the weekly median in line with the extremely high monthly level, but cut its weaker tail short.
Meanwhile, GBP/CHF correlations with GBP/USD and GBP/JPY lost some of the extra strength their 4W distribution reported.
Another noteworthy combination was AUD/CAD & AUD/USD, whose weekly correlations formed a two-headed distribution, with one centre of mass lying at an extremely high level, and the second standing at 0.50 points, below the long-term norm.