Dukascopy Research Thread

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Highlights of the latest Market Research on GBP:

The Pound Sterling was the undoubted leader of the five-day period ended May 24. Even though some losses were in place, especially by the end of the last calendar week, the GBP Index continued to hover strongly above its G9 peers. Tuesday’s spike has widened the advantage of the UK currency over the others and particularly the US Dollar, which came second in the race. The Buck soared on Wednesday, following the minutes of the Federal Reserve System, but stabilised later in the period to finish it with an increase of 0.9%. The Kiwi and Swedish Krona have also closed above the base line, at +0.25% and +0.10%, respectively.

Considering the Pound’s overall activity during the whole researched time period, its volatility was set to become unsurprisingly the highest among all major currencies. Turbulent trading was observed throughout each and every working day, which pushed the elevated volatility indicator to 38%, way above the market’s average of only 22%. The Sterling crosses with the Euro and Swedish Krona turned to be the most unstable, as the upcoming UK referendum on the membership in the EU is considerably weighing on performance of Pound’s mainland European peers. Adding to that, some European statistical events were dominant on May 18, May 23 and May 24.

The observed currency’s average significance was extremely high from the historical perspective, given that correlations of various Pound’s crosses averaged 0.63 points. This is way above the 0.47 points’ marker showed as the previous month’s average and even more significant than 6-month or annual means of 0.44 and 0.40, accordingly. The Sterling’s pairs were surprisingly brought together in their weekly developments due to a broad range of unifying factors, which in turn resulted in quite shorts tails for the majority of components’ distributions.

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Highlights of the latest Market Research on EUR:

Most of the observed currencies started the past week with a negative movement and kept to it until the middle of the period. The situation changed on Tuesday, when losers slowly began to move up, while gainers posted a negative movement. The exceptions were the Krona and Dollar, which were above the base level throughout the whole period. Some currencies, including the single European currency, dropped just after the German first quarter GDP announcement, which came out at 0.7%, while the yearly change slowed from 2.1% to 1.3%. Moreover, the economic sentiment for May moderated from 11.2 to 6.4.

The period was marked by moderate volatility, with both market and the most traded currency pair’s volatility indices demonstrating close-to-average values. The same situation was observed in other major currency pairs. The most influential event of the week was the G7 meeting, since all the pairs showed maximal volatility of the week against the background of this event. Friday and Monday both were rather tranquil in terms of market reaction to news. Germany’s and Canada’s Consumer index did not cause noticeable turbulence on the market. Tuesday morning, on the other hand, was full of news reflected in pairs’ volatility.

The Euro significance measure remained changeable and moderate, but nevertheless stood somewhat superior to the previous period’s picture. The components cut their lower tails shorter and shifted closer to higher levels, with most mean correlations strengthening both over previous and longer-term values. The most remarkable changes occurred in EUR/USD correlations with EUR/CAD, whose average values rested well 0.1 for the past month, but now reached above 0.4.

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Highlights of the latest Market Research on USD:

The British pound retained the leading position for the second week in a row. Nevertheless, the gap between the pound and its peers has narrowed, and GBP Index showed only a 1.38% gain. Meanwhile, after the BoC interest rate decision, the Loonie became the second best performer with a 0.92% growth, thus taking the Kiwi’s place, which fell down to show the worst result of the period. The NZD Index’s sporadic movements were caused by the Fonterra milk prices’ forecast as well as Bill English’s statement on the housing market, and the gauge ultimately ended the period with a 1% loss. Notably, almost all indexes spent the past week below the baseline, posting 0.12-1.00% losses.

After several weeks of tranquility, volatility on the market picked up 9%, but still remained below the one-third level. The most active currency was once again the British pound, even though it lost 5% from the previous reading. The most notable rises of elevated volatility portion was observed in the Kiwi’s and the yen’s gauges, whose readings increased by 12% and 15%, respectively. The jump of the yen’s volatility took place against the background of the G7 meeting at Ise-Shima. Meanwhile, USD/CAD was the leader among the dollar’s pairs in terms of the maximum volatility level, as it jumped with the mix of the BoC rate statement and the good news for the Greenback on Thursday.

The strong growth of the British pound caused the weakening of the most of the USD significance measure components containing USD/GBP. Moreover, some of them even dropped to the negative area. Thus the pair’s component with USD/JPY posted negative values for more than 70% of the period. The mean correlation between USD/GBP and USD/EUR has weakened by 0.28 points compared with the previous week’s readings. Among the USD/EUR components, the bond with USD/JPY was the only one to show a growth in the average value. The mean of the Greenback’s significance measure, in turn, also has declined comparing with the previous value.

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Highlights of the latest Market Research on CAD:

While remaining in a fairly narrow range, the observed indexes still managed to show some impressively sharp moves in the past five trading days. The most notable in this respect was the GBP Index, which surged on May 25 and tumbled on May 31 as the Brexit polls swayed between Remain and Leave. The Kiwis gauge was similarly active, first losing over one point and hitting the weeks low on Fonterras disappointing milk price estimate, and then rapidly climbing all the way to the second best performers position, with the move triggered by rises in building approvals and business confidence. In the end, it was outshined only by its Australian counterpart, which surged earlier the same day after the reports of narrowing current account deficit and better-than-expected building permits.

The portion of overturbulence on the market picked up a few more points, showing marginal improvement from the tranquil beginning of the month. Unsurprisingly, most of the volatility came from the pound, which was strongly influenced by the changing Brexit sentiment and suffered a 40% portion of elevated volatility. It also posted the highest peak of the volatility index, which spiked to 3.08 as the currency tumbled on Tuesday. The day saw two more turbulence measures reach above the 2.50 line the francs index, which soared with the mix of the pounds move and the Swiss currencys own dip amid strengthening in the Asia-Pacific currencies, and the AUD measure that was pushed up by the Aussies late night surge.

The Loonies correlation composite put its average slightly above the long-time readings, reflecting the relative strength of the Canadians position across the board. The CAD/USD components held mostly at or above their monthly medians, with the pairs bond with CAD/AUD being the most notable exception. Still, even as the component reached far into the negative area, the strong positive values prevailed, and its average climbed closer to the significance threshold than any of the long-term readings. Meanwhile, CAD/USD correlation with CAD/JPY was the only one to average below the long-term values. The component showed no extreme values, but remained largely subdued throughout the period.

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Highlights of the latest Market Research on EUR:

The past period was a dynamic one for the observed currencies, packed with wide moves and direction changes. The first days of the period were associated with a notable fall of the yen, while the dollar was outperforming its counterparts. However on Tuesday the situation changed dramatically. Thus, despite the losses of the yen and the Kiwi in the beginning of the period, the currencies appreciated against the background of a slip in crude oil prices, Japanese tax hike delay announcement and improving New Zealand’s economic outlook and trade data. As a result, the currencies ended the week as leaders, with 1.03% and 1.33% gains of the indexes, respectively. Meanwhile, the British pound finished the week as the worst performer after polls showing increasing number of “Brexit” supporters and weak consumer credit data.

After several periods of decreasing turbulence, market volatility finally picked up, and the measures of both the market and the Euro came to exceed their past two-week averages in 35% of time. Moreover, the economic releases from different regions sent the corresponding volatility measures to high above-2 level. Thus, the pound and the Aussie became the leaders in terms of height of their indexes’ peaks. The former exceed the 3.0 level following the poll data on “Brexit”, while the latter reached the 4.0 mark reacting to GDP data being announced well above the forecasts. It is worth noting that the British news became the most resonant event for the market as all the European currencies negatively reacted to it and the market volatility measure reached its period’s maximum.

That was another period of strong Asia-Pacific currencies’ performance, this time accompanied by GBP as a notable market driver against the background of new wave of worries on “Brexit” issue. The correlations between the pairs of these currencies were especially strong during the Tuesday-Thursday period, when their composites were fluctuating around the high 0.7 level. It is worth noting that the highest mark of 0.89 points was reached by the Aussie’s component and was associated with the currency’s gain which followed optimistic releases of business conditions indicators.

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Highlights of the latest Market Research on USD:

The examined indexes notably widened their range of values compared to several previous weeks, adding some persistency to their movements. The main players above the baseline were the Kiwi’s and the yen’s gauges, both recovering from previous losses. The former was moving north during most of the week, picking up on late Monday and gaining momentum on Tuesday, fueled by a recovery in building permits and a rise in business confidence. The JPY Index, in turn, had a sluggish start, but shot over the baseline on Wednesday, when risk aversion pushed the yen up across the board, and continued strengthening till the end of the week. In the depreciation area, the most dramatic change was suffered by the GBP Index, which posted a 3.5% weekly loss. The measure was hit by growing “Brexit” support on Tuesday, and dove even further on Friday, against the background of the dollar’s drop and the rise in the safe haven currencies.

The overturbulence portions of all examined currencies reached above the one-third mark, making the previous week the most volatile one since mid-April. Most of commotion took place on Wednesday and Tuesday and originated from the Aussie’s and the pound’s moves. The former went as far as reaching above the 4.0 points line as the Australian currency shot up with better-than-expected first quarter GDP. That surge was the week’s second highest peak, while the pound’s volatility index closed the top-3 with a 3.2 points jump at the open of the latest Asian session. As the new polls came out pro-”Brexit”, the pound took another hit, pushing its turbulence measure up amid otherwise calm weekend.

The dollar’s correlation composite held its average in line with the previous readings of 0.4, but that was the result of the offsetting Friday’s surge rather than firm performance during the week. In general, the composite’s distribution slid down, weighted heavily by the yen’s and the pound’s persistent movements as the two currencies brought a palpable amount of negative values to the dollar’s correlation. The effect was especially pronounced in the USD/GBP-USD/JPY component, which remained below zero from Tuesday to Thursday, when the dollar was flat but its peers moved in the opposite directions. Unsurprisingly, the yen’s and the pound’s composites were the leaders of the period, forming the top-4 performers along with the Aussie’s and the Kiwi’s gauges.

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Highlights of the latest Market Research on AUD:

The past week was rich with market-moving news, and the observed currencies reacted to them with a few rather wide moves. The broadest downslides were suffered by the Greenback’s and pounds’s gauges, which were hit by the extremely disappointing US jobs report and renewed worries about Brexit risk, respectively. The indexes of both currencies fell by more than 2.4% during the period, however, the pound could slightly retrieve on Tuesday and finished the period with less than 2% loss. Meanwhile, the yen’s gauge enjoyed the longest 2.4% rally during Wednesday-Friday, but, after the slide at the beginning of the current trading week, finished the period with 1.27% gain over the base value, which still remained the best result of the period.

During the observed period the Aussie’s volatility picked up as the index twice climbed above 4 points, but the elevated volatility portion exceeded the 40% level. The elevated volatility portion exceeded the 30% level for the most of AUD crosses, but the GBP/AUD stood out in this respect, its volatility measure spent more than half of time above the average historical level and even reached the 5.7 mark, which is not surprising against the background of worries about the upcoming “Brexit” referendum. Meanwhile, the yen became the absolute leader in terms of its activity as its elevated volatility portion reached 66% mark, while the dollar’s measure posted the highest spike of 5.49 amid the four-times lower-than-expected nonfarm payrolls showing, which became the most resonant event of the week.

The Aussie’s composite, which measures the currency’s significance on the market, was varying in a wide range of 0.29-0.83 points. In spite of the fact that the two previously discussed Australian economic releases heavily influenced the currency and thus managed the correlations between the Aussie’s pairs to grow significantly but the composite to reach the exceptionally high 0.8 level, the average showings of the AUD/USD components were below its historical levels. It was associated with relatively weak performance of the currency during the period between the GDP and interest rate releases.

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Highlights of the latest Market Research on EUR:

The period was marked by a strong divergence between the gainers and the losers. The week was hugely successful for the Kiwi, whose index spent the first three days at the base level, but surged to 102.5 as the RBNZ left interest rates unchanged. Meanwhile, the Greenback and the pound became the period’s worst performers. The GBP Index retained its negative tendency from the previous week and continued to fall throughout the whole period. The currency was weighted by the “Brexit” poll results released over the weekend, the gauge reduced to the 98.2 mark by the end of the period. However, the Greenback managed to show an even worse result. The dramatic fall of the US nonfarm payrolls, which came out more than four times lower than expected, pushed the dollar down sharply, and it failed to recover till the end of the week, ending the period with the 2.1% loss.

The past week was marked by the very high portion of elevated volatility of all observed currencies. Both the market and the single currency spent more than a half of the period above the historical level. The yen became the most turbulent currency of the week, with the 65% of portion of elevated volatility. Nevertheless, its volatility index did not exceed the 2.5 mark. The highest volatility spike, in turn, was made by the Kiwi, whose gauge surged to 6.7, reacting to the RBNZ interest rate decision on Wednesday. The second highest was the dollar’s index’s jump, which reached the 5.5 mark after the extremely low US nonfarm payrolls data came out on Friday.

After more than a month of low values of the single currency’s significance measure, the composite managed to recover slightly. Thus the mean of the Euro’s composite added 0.06 points on the previous week’s results and 0.04 on its monthly value. The growth of the average values of the EUR/USD components was more notable, rising by 0.08-0.21 points from the previous readings. The most notable change was observed in the EUR/USD – EUR/SEK component, which posted a negative average value in the previous week. The only exception was the bond between EUR/USD and EUR/JPY, which has weakened by the 0.03 points.

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Highlights of the latest Market Research on USD:

The past week appeared to be the period of the commodity currencies, as the appreciation area was largely dominated by the Loonie’s, the Aussie’s, and the Kiwi’s gauges. The CAD Index was the first to break above its peers, gaining momentum as the oil prices went up. Afterwards, however, the gauge remained flat, and even with additional push from stronger-than-expected employment data failed to overcome the Kiwi’s measure. The latter had its pivotal moment on Wednesday, when the RBNZ left the rate unchanged. The decision was not unexpected, but the market displayed a stark reaction, lifting the NZD Index 1.6 points up and allowing it to post an almost 2% weekly gain. The Aussie’s gauge also got the deciding push from its central bank, gaining 0.9 points as the RBA promised to employ no further easing in the nearest future. The jump, however, only allowed the measure to come in forth. The third best result, interestingly, was posted by the safe-haven franc, whose index was slowly climbing up throughout the week, with the investors’ interest possibly fueled by the uncertainty over the upcoming “Brexit” referendum.

After a notable increase in the previous period, the market’s volatility continued to grow, with the composite measure keeping above the two-week average for more than half of the week. Most of the turbulence came from the yen and the franc, which were governed by the mix of strong commodity currencies on one hand and the “Brexit”-related risk aversion on the other, ultimately posting 60% and 53% high portions of elevated volatility. Meanwhile, the highest volatility peak was posted by the Kiwi, whose RBNZ-triggered surge added up to the 6.4 points high spike of its turbulence measure. The market’s composite reaction to the RBNZ’s rate decision also proved to be the strongest, followed closely by the volatility splash in response to the fellow Australian regulator’s monetary policy report mixed with the pound’s rollercoaster move on Tuesday.

The dollar’s correlation composite lost some points off its previous average, with its values shifting further down compared to the long-term distribution. The composite was heavily influenced by the yen, the pound, and the commodity currencies, whose own measures showed the strongest performance in the week and brought a considerable amount of feebleness and negativity into the associated components. Notably, USD/EUR mean correlations with USD/JPY, USD/GBP, and USD/CAD fell below the significance threshold of 0.3 points, with the former two showing far weaker results than their long-term readings.

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Highlights of the latest Market Research on GBP:

Worries over the ‘Brexit’ referendum continued to weigh on the British pound, and its index finished the period below the baseline for the third week in a row. Meanwhile, the observed five trading days were hugely successful for the yen, whose measure posted an almost 2% gain. The JPY Index started to grow on Friday, after the positive Japanese Tertiary Industry Index report and against the background of the oil prices decrease. On Tuesday it even managed to overtake the Kiwi, which held the leading position since Wednesday. The sharp increase of the New Zealand dollar took place right after the RBNZ interest rate decision came out, the index surged to the 102.2 level and held it for the next three days.

The volatility of the market was rather high, and the aggregate turbulence measure spent more than 50% of the period above the historical level. The absolute leader among the examined currencies was the yen, which posted a 63% high portion of elevated volatility. The GBP Volatility Index, in turn, spent 55% of the period above the 1-point level, thus showing an above-the-average overturbulence. Meanwhile, the Kiwi produced the period’s highest volatility peak, reacting sharply to the New Zealand rates decision.

With another period of the pound’s across-the-board lowering its significance measure continued to hold at a rather high level. Thus the average readings of the correlation composite and the GBP/USD components have increased compared with the monthly values. The rise is well shown in the violin plot – all distributions have cut their lower tails short and concentrated around the mean value. The most notable growth was observed in GBP/USD correlations with the GBP/AUD and GBP/SEK, which have added 0.14 and 0.12 points to the monthly values.

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Highlights of the latest Market Research on EUR:

The week was full of influential economic releases from different regions, however, their effect was almost unnoticeable against the background of continuing “Brexit” concerns. The another polls data showed increasing number of votes to leave the EU, so the domestic currency was negatively driven by this news and finished the week among the “loosers” joining the krona and the Kiwi, which depreciated amid sliding oil prices. Thus, it was another week of investors’ high interest to the safe-haven yen, the index of which gained 2% during the three first days of the period. Later, the currency extended its gain twice as the BoJ report revealed its decision to hold off from expanding the monetary stimulus program.

For the second week in a row the market’s elevated volatility portion exceeded the 50% level, thus pointing to the great activity on the market which is mainly attributed to the upcoming “Brexit” referendum worries. Thus, the GBP volatility index as well as the EUR/GBP component was overturbulent in 58% of time, however, the greatest activity was observed in the yen, which as the safe-haven currency was sensitive not only to domestic news but the overall market sentiment. As a result, the yen’s overturbulence was reflected in the 68% portion of elevated volatility as well as the index’s 3.0 spike (4.17 for the EUR/JPY), which followed the BoJ monetary policy report.

During the week the Euro did not drive its pairs, which was reflected in negative values for different components. In this terms the pound and the yen should be considered the main driving power on the market as their currency pairs were strongly correlated throughout the week and the composites reached 0.8-0.9 level. However, correlation between some EUR pairs improved, for example, the EUR/USD - EUR/JPY had relatively strong positive correlation, which in this case can not be attributed to the Euro but apparently to the dollar’s and the yen’s reaction to the situation with respect to “Brexit”.

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Highlights of the latest Market Research on USD:

The yen became the leader of the previous week, posting the second highest index growth, but holding above its peers throughout the period. The measure surged to the week’s absolute high of 3.7 points after the BoJ interest rate decision, but fell back the following day, yielding the first place to the GBP Index. The latter rocketed to 101.75 points against the background of the BoE’s governor’s speech, thus entering the new period with the highest gain. Meanwhile, the past week’s worst performer was the CAD Index, which, despite the rise of the oil prices, spent the period in the depreciation area, falling to the 98.2 mark.

For the third week in a row the market spent more than 50% of the period above the average historical level. The Greenback was a little calmer than the aggregate, and its overturbulence portion stood at 46%. The peer currencies were also quite changeable, all showing elevated volatility of 40% or more. From the beginning of June the most turbulent currency was the yen with the portion of elevated volatility exceeding 60%. Meanwhile, the most turbulent dollar’s pairs were the ones with its European peers – GBP/USD, USD/SEK, and EUR/USD, - which spent 48% - 63% of the period above the one-point level.

The past period was marked by the USD/JPY components’ notable fall to the negative area. Continuing the past week’s trend, the components started the period below zero and after a brief mid-period recovery fell back with the BoJ interest rate decision. Thus the average correlations between USD/EUR and USD/JPY lost almost 0.3 points compared with the previous readings. Meanwhile, most of the other USD/EUR components strengthened. The USD/EUR correlations with USD/AUD and USD/CAD added 0.11 and 0.18 points, respectively. An even larger increase was observed in the bond between USD/EUR and USD/GBP, which has strengthened by 0.26 points compared with the previous week.

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Quarterly Report: Q3 of 2016

Shock waves caused by the decision of the United Kingdom to leave the European Union are expected to ripple across the globe. Though there is a high degree of uncertainty about the consequences as they will largely depend on the goodwill of both the UK and the EU during the negotiation process and on the timing of the divorce, Brexit is fuelling market volatility and is worsening overall economic sentiment.

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Full report is available here.

Summary

[ul]
[li]Having experienced a completely unexpected United Kingdom’s vote to leave the European Union in the referendum that took place on June 23, the global economy is now even further from seeing a continuous upturn, especially in the wake of weak EM performance, economic and political challenges in Europe along with ongoing uncertainty over the upcoming elections in the United States. Nevertheless, despite a steep downgrade of projections for the UK on the back of the ‘Brexit’, professors’ sentiment towards the performance of the world economy seems to have remained relatively unchanged over the observed month, though still indicating sluggish growth.
[/li][li]Uncertainty over the ’Brexit’ has been dominating the world economic arena for the past month to eventually see the UK divorcing the European Union, which has immediately shaken market volatility worldwide and cut down on economists’ confidence in the bloc in the observed month. The latter has also sent both short and long term sentiment gauges significantly lower in June, indicating the possibility of slower recovery in the common-currency zone.
[/li][li]While consumer spending, which remained pretty strong in the Q2, along with retail sales that expanded for the second straight month and better-than-expected non-farm payrolls reading managed to boost the US economy, overall, North America saw mixed results in June, as the six-month sentiment inched down slightly, while the three-year measure proved to continue its positive trend.
[/li][li]The positive momentum in the Asia-Pacific region seems to have continued in June even despite soft global demand and signs that the Chinese investment-led recovery is coming to an end, as both short and long run sentiment indices soared in the measured month.
[/li][/ul]