The past week appeared to be eventful for all observed currencies, as the each index experienced some sharp changes. The Greenback’s gauge was mostly growing and finished the period on a leading position with a 1.25% gain over the base value. The Swedish krona, in turn, was weakening since the very beginning the period, and by the end of the week its index lost 1.7% to become the worst performer. The only other indexes to finish the period below the baseline were the Euro’s and the Swiss franc’s gauges, which started to lose their positions in the middle of the week.
The past week was rather turbulent for almost all observed currencies. Thus the portion of both the dollar’s and the market’s elevated volatility rose back to October levels, and came at 43% and 56%, respectively. The period was especially noteworthy for the Swedish krona. The Riksbank’s decision to leave the interest rate on hold at 0% caused the lowering of the national currency, and USD/SEK Volatility Index reached an unprecedented value of 12.31, subsequently spending 62% of the week above the 1-point mark. Another highly volatile pair was USD/JPY, which, though not reached the highest peaks, was overturbulent for 64% of the period.
The past period saw the dollar’s significance reduce, with the component distributions notably heavier on their lower tails, and mean values below previous readings. Consequently, the measure was topped by most of its counterparts, holding around the same levels as the Loonie’s, the Aussie’s, and the pound’s gauges. The yen, the Kiwi, and the Swedish krona, for the most part, held their composites dominating the others, indicating most consistency in their movements across the market, while the Euro’s significance, as per usual, lacked behind its peers.
Even though the British pound was far away from being the best performer last week, the GBP Index was hovering above the baseline for the vast part of December 17-23 time period on rather positive fundamental data. The currency, however, managed to increase only 0.23% during the period, both outperforming and underperforming four currencies on the market. US Dollar posted the fastest gain of 1.76%, while the Japanese yen dropped as much as 1.66%, against which the Pound surged 1.67%. Despite that, the GBP went down against USD and CAD, by 1.36% and 1.47%, respectively.
From time to tome, the period was notably turbulent, but the pound’s Volatility Index has spent about more than 50% of the first two days above the average level. The highest portion of elevated volatility in these days was observed in EUR/GBP pair, which was the only one to surpass 50% mark, on aggregate. GBP/USD and GBP/CHF followed with an elevated volatility of around 43-48%. On the other hand, it is worth pointing out that the average GBP elevated volatility of 41% was well above the market average, which stood at 26% only. Meanwhile, the largest GBP volatility peak did not exceed 2.5 points during December 17-23 period.
The components of the British pound’s significance measure showed rather small correlations over the observed period, while the overall GBP composite was volatile for the most part of the period. The short-term correlations during the period between GBP/EUR and other GBP crosses varied from 0.37 to 0.89. As seen from the main chart, the smallest correlation was with GBP/USD, particularly on Wednesday when a drop far below zero provided the component the weakest result of the week, as its correlations stood around 0.05 only. Compared to the 20-day values, most of the correlation pairs gained 0.07-0.16 points, but GBP/USD and GBP/SEK tumbled around 0.10.
The past week was short on trading days, but not on market shockers, and the observed currencies managed to go through some notable ups and downs. The SEK Index was the most instable one, with numerous plunges and recoveries ultimately landing it below its peers both on short- and long-term scale. The Greenback’s gauge, on the other hand, remained the leader in the long run, posting overwhelming 10% and 12% growth over the year and the past six months, respectively. On the weekly basis, the USD Index was outpaced only by its Kiwi counterpart that sprinted to the best performer’s position on the Boxing Day.
The holiday week saw a notable decrease in the trading activity, with the portion of elevated market volatility on an incredibly low level of 1%. Despite the US dollar’s movements in the beginning of the week, the USD Volatility Index only managed to exceed the historical average once and for a very brief moment, resulting in the same reduced per cent of overtubulence. Among the USD components, USD/JPY and NZD/USD volatility failed to rise out of the tranquil area altogether, while GBP/USD, USD/CAD, and USD/SEK demonstrated a somewhat higher degree of activity, pushing their portions of elevated volatility to 13-15% of the period.
Previously observed weakening of the dollar’s significance measure was carried over to the past period, leaving the USD composite to trail among the most feeble gauges. Most of the components showed notably reduced average values, while their distributions edged below the significance threshold of 0.3 points, indicating a discord in the Greenback’s movements across the market. Among its counterparts, the Swedish krona kept its component in the dominant position, with the Canadian, Australian, and New Zealand dollars interchanging on the two remaining places of the top three.
After the sluggish end of 2014, the dollar skyrocketed into the new year, with its index posting the second best weekly growth and extending its long-term gains further above 10%. The yen was the only currency to join the Greenback in its Friday rush, and the JPY Index finished the period as the best performer with its first positive weekly change since the end of November. The Euro’s gauge, in turn, stood at the head of the losing indexes, giving up on whatever strength it struggled to gain during the Christmas week. The Swedish krona remained the most volatile currency, with the numerous jumps and falls ultimately putting its index below the baseline for the fourth consecutive week.
Volatility picked up somewhat from the previous period, prompted by the last days of 2014 and the first weekend of 2015. The dollar was one of the least turbulent currencies, with its portion of elevated volatility and average composite value below the market readings. The only major that proved to be more tranquil than the Greenback was the Kiwi, whose volatility index exceeded the norm in 8% of the time and posted an average of 0.65 points. Subsequently, NZD/USD was the most stable dollar’s pair, followed closely by USD/JPY and AUD/USD. The most turbulent ones were USD/SEK, GBP/USD, and EUR/USD.
The USD significance measure continued the pattern of the previous periods, as it mostly held on a very moderate level and showed one interval of stronger readings. On the overall, the values did edge up, with the week’s average correlations higher for the composite and most components, and component distributions a little closer to the middles of the long-term violins. However, this did not change the composite’s standings among peer gauges, keeping the dollar among the least market-moving currencies. Notably, the Swedish krona, along with being the most volatile currency, remained the one with the greatest significance measure.
Summary
[ul]
[li]Mood among professors who took part in the December Sentiment Index poll had brightened ahead of Christmas and New Year holiday season. All the regions saw their indexes of both six-month and three-year economic outlook rising in December, except for Asia-Pacific short term sentiment, which remained unchanged from the previous month.
[/li][li]Europe’s economic sentiment indexes inched up despite ongoing economic and political concerns in the continental economy, as well as possibility of a modest slowdown in the UK’s growth rate going into 2015. In light of disappointing TLTRO in December and constantly falling inflation in the Euro zone, the ECB said it would assess whether its current measures are sufficient to bring consumer prices toward its official goal of below but close to 2% and revive growth. In case the bank decides its policies are not enough to end a period of disinflation, that would “imply altering the size, pace and composition of our measures.”
[/li][li]In North America, the US and Canada’s economies grew more than expected, the recent data showed, with the US economy expanding at the strongest pace in more than decade in the third quarter. This upbeat data is reflected in professors’ economic sentiment, which soared in December.
[/li][li]Meanwhile, in Asia-Pacific region, China, the world’s second biggest-economy, is set for a “hard landing”, Japan’s economy contracted more than expected in the third quarter, and Moody’s downgraded Japan’s rating. The RBA is seen cutting interest rates amid slowdown in the Australian economy, which showed the weakest growth since the beginning of 2013. Academia experts’ assessment of the economic situation in the region in six month from now remained unchanged from the previous months, while long-term sentiment index climbed modestly in December.
[/li][/ul]
It may seem the main FX topics for 2015 are crystal clear–appreciation of the US Dollar amid the highly-anticipated Fed rate hike and broad-based sell-offs of the Euro and the Yen. The common currency may become a victim of the Euro zone edition of the quantitative easing. On the other hand, the Japanese Yen is expected to suffer more from lagging growth and stubbornly low inflation, partially a result of the fiscal tightening. There is an important distinction between the latter two, however.
Nippon citizens are confident in leadership of Shinzo Abe, as the latest parliamentary election results have shown. Consequently, the government is likely to keep pushing ahead with the planned measures to revive the economy and catch up to the leaders among the developed nations without any political hindrance, a salient issue in Europe.
Even though there are apparently less opposition to the QE within the ECB itself, unwillingness of politicians to assist the monetary authority to steer the economy away from the creeping deflation by implementing the often mentioned by Mario Draghi structural reforms is unlikely to prevent the gap between the business cycles in the Old and New Worlds from widening further.
What is particularly amusing is that we had a similar situation a year ago, foreseeing together with the whole market strong outperformance of the US Dollar, but also depreciation of the Euro and the Yen. Yes, the course of events in 2014 deviated from the base case scenario, mainly because of the geopolitical tensions, but that does not fully account for the distance between the forecasts and the reality. Despite the confidence of the market, there are always unknowns in the equation that can change the rules of the game.
Something we can draw from the lessons of the past is that you cannot possibly be too cautious or too conservative, at least in the context of trading and investing. The analogy might be far-fetched, but if you are climbing a mountain, it is better if your steps are maximally small and careful – one wrong move, and you may find yourself on the ground.
After rather flat pre-Christmas week for the single European currency, during January 2-8 time period the Euro declined rather considerably as it registered the third strongest fall among major currencies. During the first day of the period on Friday the Euro traded just above the baseline, but on Monday it slid below the zero level and remained there until January 8. On overall, the shared currency lost 1.16% in one week, even though the worst performer used to be the British pound which plunged 1.98%. New Zealand’s and Japanese currencies, however, gained the most by rising 1.83% and 1.71%, respectively.
Except the weekend on January 3-4, volatility of the Euro used to hover around the normal level for the vast part of the period. Some local spikes in turbulence were observed on Tuesday and Wednesday along with many economic events across all regions, which drove the single currency in different directions, thus creating uplifted activity on the market. In Spain, Italy, United Kingdom and United States - services PMI were released and on aggregate showed a negative tendency (all except Spanish). On Tuesday, Australian statistical authorities have also published much better than forecasted numbers on trade balance in November.
As was seen in both Currency and Volatility Indexes, the single currency alone was not the catalyst of the market throughout the period, since that many data from all over world were released. The observation was well supported by the Euro significance measure, that spent the period on a very feeble level at all time except January 8 and had a low average value. As usually, the correlation between the Euro pairs were relatively low and this week the components of the composite were concentrating around the zero; however, only at the very end of the period correlations spiked up to 0.35.
Majority of currencies experienced losses during the past week. The worst performers were the European currencies, with their indexes moderately slowing down during the week and eventually losing more than 1% of their base values. However, the gains of the Asia-Pacific currencies were even more conspicuous. The Aussie and the yen indexes ended the period with a 1.5% appreciation, while the Kiwi became the top performer with the 2.22% gain of the index. The index of the US dollar, in turn, was varying in a narrow range between 99.5 and 100.5 points and finished the trading week at the base line.
As data release activity picked up in the first post-holiday week, volatility across the market finally crept out of the tranquil area. Remarkably, the Greenback took the title of the most volatile currency of the past period, surpassing it’s peers in all observed parameters. AUD/USD, EUR/USD, and NZD/USD were the most turbulent dollar’s pairs, with their average volatility indexes above the reference line of 1 point and their portions of elevated volatility exceeding 50%. Interestingly, corresponding currencies were not particularly volatile on their own, implying that the instability of the combinations came mostly from the Greenback’s component.
The past week saw an increase of the USD significance measure. Starting the period around 0.40 points, the measure moved on a mild the upward trend and by the end of the week reached above the 0.50 points mark. Compared with the previous period, the average component correlations gained 0.10-0.20 points, while the growth of the composite’s mean was 0.12 points. The distributions of correlations also shifted up, and their upper tails became notably heavier. The period was notably turbulent for the EUR/USD-USD/CAD correlation, as it was fluctuating in a wide range from -0.03 to 0.72 points.
In contrast to our previous analysis of the British pound before Christmas, during the very last January 7-13 period this currency performed much better, as it used to be the third most successful performer on the market. Despite that, the overall trend was mixed, as the GBP index was swinging around the baseline from both sides for most part of the week. Overall, the Pound added 0.46% in five working days, underperforming only to the Japanese yen and Australian dollar which surged 1.23% and 1.79%, respectively. Among GBP pairs, the most noticeable increase of 1.88% was registered by GBP/SEK.
Except some local spikes in the GBP volatility on Friday and Tuesday, it used to be rather calm in terms of turbulence. This could be also reflected in the elevated volatility index, which was on the upside only during 23% of the whole period and in 77% of all time stayed below the average line. Some local turbulence increases were, as usually, provided by very specific fundamental data releases, which included UK manufacturing production back on Friday and Britain’s inflation. While the former rose 0.7% in November of the previous year, the UK CPI dropped to 0.5% in December, down from 1% a month before.
As was seen in both Currency and Volatility Indexes, the main catalyst for the Pound was statistical news exactly from the United Kingdom, mainly due to high importance of indicators released. The observation was well supported by the Pound significance measure that was located above the baseline for more than 50% of all time in the period, even though the average level itself was not high and stood only at 0.33 points. Correlations between different GBP crosses were around 0.40 points since Thursday, only registering a short-term decline below the average level on Monday. Nevertheless, the currency’s significance managed to recover and close the period at 0.42 points.
The main event of the past period can be summed up in three words: Thursday, Swiss franc. The historical safe-haven currency stole the spotlight after the SNB unexpectedly dropped the triennial cap of 1.20 Euro on the franc, and its Currency Index soared to unprecedented levels of over 110 points. Other majors were left far behind, and the yen’s gauge was the only one that managed to hold above the baseline after the event. The single currency took the hardest blow, as it’s index posted a record 4% weekly loss. The Loonie and the Swedish krona were not far behind, with their gauges ending the period 3.8% and 3.7% below the baseline.
The period can be divided into two parts: January 9th – 14th should be considered separately from Thursday, January 15th, which was quite a different story in terms of market volatility. The most volatile pairs during the first four days were the ones with Asia Pacific currencies. The spikes of market volatility were associated with disappointing Canadian change in employment on Friday and less negative than expected Swedish CPI on Tuesday morning. The later made the market volatility index surge to 1.91 points, but the EUR/SEK index – to 4.48. It was the only pair that reached its volatility maximum before the Thursday’s SNB decision to lower its interest rate.
Despite the upheavals that occurred in both Currency and Volatility Indexes, the Euro significance measure reacted to the Thursday events rather calmly. The composite was fluctuating in a usual range of 0.08 to 0.39 points, and, compared with the past week values, its average lost only 0.01 point. Thought while the averages of most components also dropped quite moderately, the lower tails of their distributions shortened, and the values gathered closer to the averages. EUR/USD correlations with EUR/CHF and EUR/SEK strengthened the most, pulling their averages 0.15 and 0.16 points up, respectively.
Let’s observe the period before Thursday morning separately from the rest of the trading week. The top performer during this period was the yen, with its currency index gaining 2% of the base value by the middle of the week. The second best was the pound, which was steadily growing during the period in spite of lower-than-expected CPI data. The most conspicuous changes in currency strength were Tuesday’s 1.45% surge of the SEK Index as unexpectedly optimistic December’s CPI was released and 1% drop of the AUD Index in reaction to a sharp fall in copper price. Decreasing Australian unemployment data release early on Thursday prompted the AUD Index to rise by 0.8%.
The past week was the most turbulent one on record, fueled generously by the Swiss franc’s rally. The dollar showed the second-sharpest reaction among the franc’s peers, with its volatility index surging to 28 points, 6 points below that of the Euro. The market remained overturbulent long after the initial shock of the SNB’s announcement, and all of the volatility measures held well above their historical averages for the rest of the period. Notably, pairs with the Pacific currencies were the only ones that reached their maximum volatility outside the scope of the Swiss news.
Similarly to the Currency and Volatility Indexes, the USD significance measure also was heavily influenced by the SNB’s new monetary policy. Compared with the past week, composite’s average lost 0.11 points. In turn, observed components dropped for 0.01-0.37 points. The most noticeable drop was observed in correlations between EUR/USD and USD/CHF. As the news went viral, the component fell instantaneously from 0.95 to -0.66 points. However, by the end of the period the negativity retreated and the component reached the level of -0.03. The usually compact distribution of the component shifted down significantly.
The Japanese currency entered into decline phase on Thursday during January 14-20 time period, which was, to a great extent, caused by the decision of the Swiss National Bank to decrease the deposit rate even lower to –0.75% and abandon its exchange rate limit with the euro at 1.20. As a result, all currencies on the market dropped against the franc. JPY/CHF, in particular, declined as much as 14.93%, which was not the worst result. The franc itself managed to gain 16.26% during the mentioned period and the most changes took place on Thursday. Back to the yen, it gained the most value against the euro last week by 1.14%.
The period was associated with extremely uplifted volatility values in the end of the previous week and very high portion of elevated volatility for the yen at 86%, even though it almost matched the market’s one of 85%. The most noticeable impetus was provided by the Swiss franc, where the yen’s pair with this currency observed substantial volatility in 93% of all time during the period. On the other hand, as can be seen from the tables, the Japanese yen was not the period’s most volatile currency – its Volatility Index reached the 11.96 level at the peak due to incredibly strong CHF/JPY changes, while market‘s maximum hit 37.6 at that time.
Taking into account significance levels of JPY, calculated as an average correlations between all currency pairs of the yen, this currency was not one of the main drivers last week. The average correlation levels stood at 0.53 points during the week while for the most of the period the currency developed below this mark amid major changes with the Swiss franc on Thursday. Taking into consideration the mean correlation coefficients for the Japanese currency, they mostly matched one month and half-year levels around 0.56-0.58 points.
The new week eased some of the turmoil of the SNB’s January 15 announcement, and most of the currency indexes returned to their usual behavior. The franc’s gauge proved to be an expected anomaly, as it took over the position of the most volatile index from the krona’s gauge. Majority of the indexes spent most of the period in the appreciation area, recovering from the past slump. Notable exceptions were the yen, which seemed to suffer the least among the franc’s major peers, but whose index failed to keep up with its counterparts later on, and the Kiwi that set its gauge into a downtrend after New Zealand CPI numbers reported an unforeseen drop.
The period was enormously volatile for both the market and the single currency. Almost all Euro pairs lifted their elevated volatility portions above 50%, with the measure for EUR/CHF reaching full 100%. Of course, it can be easily explained by the fact that during previous three years the pair’s rate was only slightly varying around 1.2, thus demonstrating the lowest volatility among its peers. As a result, present volatility of the pair is considered as very high against that of the past. The reason of such high market Volatility Index values is the same. In addition, the period was full with influential news on different economies.
The period was marked by an increase in the average values of all observed correlation pairs. Compared with the previous week, the components have gained 0.03-0.33 points, while the average of the composite has risen for 0.15 points. The most noticeable strengthening was observed in the bonds between EUR/USD and the Asia-Pacific currencies. Changes of the average EUR/USD correlations with EUR/CAD were minimal, even though the dynamics of the component was rather animate. It held at the level of 0.69, which significantly exceeded the usual, but the BoC decision to cut interest rates caused a sharp fall of the component, bringing it as low as -0.18 and notably skewing the average.
The week was dynamic for the biggest part of the currency indexes. In the aftermath of the SNB decision, the frank’s index was the most volatile one during the observed period, but its ups and downs eventually led it to finish the week at the base value. The Greenback became the top performer, gaining against all of its counterparts. The yen has demonstrated similar appreciation, and the pound’s index was growing throughout the whole period. The EUR Index, in turn, started the period with a 1.5% growth, but noticeably dropped after the ECB comments on Euro zone’s monetary policy. The Pacific currencies and the Loonie experienced the greatest losses.
After the previous overturbulent week, the past period was slightly more stable, and the portions of elevated volatility of the market and the US dollar were 69% and 59%. The most turbulent dollar’s components were USD/CHF and NZD/USD, which spent 66% and 67% of the time above their historical volatility level. Other parameters indicated that volatility of almost all components and composites came back to normal, leaving behind enormous values of the previous week. The only exception was the USD/CAD component, as its maximum value was significantly higher than the peaks of its peers and has exceeded even the previous week’s spike.
The dollar’s significance measure reclaimed its firmer position after the previous week’s drop, settling around 0.4 points in the end of the period. The component distributions also shifted closer to usual, as their lower tails were cut shorter and the majority of values concentrated around the medians. Only correlations with USD/CHF remained somewhat undecided, taking up a wider range of values than the other components. In total, though, despite an obvious uptrend, the dollar’s composite posted feeble results compared to its peers, falling behind other gauges in the beginning of the period and making it to the top-five only by the end of the week.
During last period ended January 27, the Pound used to be one of the best performers among major currencies on the foreign exchange market. The British currency was hovering above the baseline for most part of the period, only except January 21. As a result, the currency was only outperformed by the Japanese yen in terms of weekly gains, while GBP/JPY lost 0.39% in five working days from Wednesday till Tuesday. The most noticeable gainers among GBP pairs were GBP/CHF and GBP/AUD which advanced 3.53% and 3.34% last week, correspondingly.
For the vast time of the period the British Pound’s volatility stayed well above the average level, only making small exceptions on Friday’s and Tuesday‘s mornings. This fact can be also proved by the elevated volatility index. Judging from it, the Pound used to be turbulent in 63% of all time during the period, even though the mean market volatility of 66% was not surpassed. Major turbulence increases were, as usually, strengthened by very specific fundamental data releases, which included, for instance, the Bank of England’s meeting minutes and unexpected decision of the Bank of Canada to decrease the main interest rate to 0.75%, while the volatility of GBP/CAD currency hit 10.16 points at its maximum.
As was seen in both Currency and Volatility Indexes, the main catalyst for the Pound was news exactly from the United Kingdom, mainly due to high importance of indicators released. On other hand, having a look at significance measures of the GBP, which is calculated as an average correlation between all Pound’s crosses, we should notice that main drivers here used to be factors from outside Britain. The significance measure itself was located below the baseline for more than 70% of all time in the period, even though the average level itself was not high and stood only at 0.32 points.
After a plunge against the background of the ECB’s QE announcement on January 22 and some wobbly movements on the following Friday, the EUR Index rushed through the new week on an uptrend, ultimately becoming the fourth best performer of the period. The single currency posted modest weekly loses against the pound, the yen, and the dollar, whose indexes held in the appreciation area throughout the whole period, but managed to notably outperform the Pacific currencies and the Swiss franc. The latter depreciated against all its major peers, pushing its index to report a substantial loss of 5% over the past five trading days.
The week was rather volatile for the single currency with 57% portion of elevated volatility. Market volatility measures also were above the average. However, if we look at the three first days of the observed period, we see that the Euro Volatility Index’s values were higher than market’s, which means that volatility increases to a great extent were due to changes in the EUR rate. Different situation was observed during the rest of the week. For example, the release of lower-than-expected Australian CPI and unexpectedly negative New Zealand’s trade balance influenced the market noticeably. The later send the index to the 2.1 level, and thus became the most turbulent event of the week.
Even though the Euro significance measure was decreasing during the period, its average correlation readings continued to grow. The value of the composite itself edged 0.09 points up, while its most resultant components – EUR/USD correlations with EUR/JPY and EUR/CHF, – gained 0.25 and 0.32 points on their averages. The bond between EUR/USD and EUR/SEK was the only one to weaken, with its mean value losing 0.03 points. It did, however, grow compared to the long-term readings, as did all other correlation components. This growth was more substantial than the weekly change, as the component distributions notably shifted up, making their upper tails heavier and lower tails shorter.
Majority of the currency indexes grew against the background of progressive weakening of the Swiss franc during the period. Finishing the trading week with a 5% loss, the franc became the worst performer. The Kiwi was the second worst, as its index dropped by 1.5% after the monetary policy statement suggested a possible future decrease in interest rate. The Euro has demonstrated the best results, as it fully recovered from Friday’s losses on Monday and continued to rise later, gaining more than 2% during the week. The Greenback’s index, in turn, was ranked in the middle, significantly appreciating against four and slightly declining against another four of its peers.
It seemed that the past week’s turbulence was all about speculations on future interest rates moves across the globe. On Wednesday morning, Australian CPI numbers missed the forecast by only 0.1%, cooling the tension around a possible rate cut in February and lifting the Aussie against its peers. Later in the day, RBNZ did the opposite and pushed the Kiwi down, saying that the next adjustment might take the rate either higher or lower. The dollar’s volatility index jumped to its highest peak on the New Zealand news, and to the fourth highest on the Australian event.
The US dollar significance measure’s attempt to recover in the previous period was cut short in the past week, and the gauge showed a downward trend during the observed days. As a result, averages of the composite and some of the components decreased. Thus, the composite lost 0.02 points, but the EUR/USD bonds with USD/JPY and USD/CHF weakened by 0.13 and 0.16 points, respectively. In turn, EUR/USD average correlations with other dollar’s pairs rose by 0.02-0.18 points. However, despite the increase of some averages, all observed components showed a tendency toward reduction, and ended the period on relatively low levels.
[ul]
[li]The beginning of a new year was marked by unexpected decisions and moves from major central banks all around the world, which were triggered by the latest economic data and developments in global financial markets. However, the impact of the unexpected rhetoric of some central banks on short-term and long-term economic sentiment appeared to be limited. Both six-month and three-year global economic sentiment indexes were unchanged in January from the previous month, remaining in the green territory, which indicates improving conditions going forward.
[/li][li]Europe’s six-month economic sentiment index, which came in at 0.41 in the reported month, pointed to the fact that the number of pessimists outweighed optimists. Thus, in the coming months, recovery in the regions was questioned. However, as ECB decided to deploy full-blow QE programme, the decision might help push the index higher. Experts expected slightly brighter long-term economic prospects, as the corresponding index climbed to 0.52. Yet, professors were likely to remain concerned about the European economic future, as the index hovered just slightly above the 50-mark threshold, which separates pessimism from optimism.
[/li][li]Apparently concerns over low inflation worldwide, including the world’s number one economy, as well as plunging oil prices, which affected Canada’s economy, weighed on professors’ economic forecasts. Both short and long run sentiment indexes ticked slightly lower in January, but firmly remained in a positive area.
[/li][li]Asia-Pacific six-month and three-year economic sentiment indexes rebounded in January after four consecutive declines in the previous months. Economic growth in the region remained patchy, with China’s economy, the world’s second biggest, slowing, while still expanding at a solid pace, compared to other countries
[/li][li]
[/li][/ul]
The Australian dollar was in the list among the worst performing currencies in the period from January 28 till February 2, as its currency index declined 1.58%, during five trading days. Only the Swiss Franc dropped even more, by losing 2.06% last week. Having a look at the components, AUD plummeted the most versus the Euro and Japanese Yen by 2.86% and 2.13%, correspondingly. Speaking about positive performers of the period, the Euro rebounded notably by registering an overall advance of 1.7% versus its counterparts, while other currencies managed to gain less than 1% for the weekly period ended this Tuesday.
Both elevated volatility proportions and values of volatility indices of the Australian currency were well above market average levels during the period. Concerning elevated volatility, it is worth pointing out that especially the Pound/Aussie and Aussie/Loonie crosses were unusually active, as they both were turbulent in 72% of all time, compared to currency’s average of 65% and market’s mean at just 51%. Meanwhile, the maximum volatility index for the Australian Dollar stayed at 5.18 points last week, while the most turbulent currency pair in terms of this particular indicator used to be the AUD/JPY at 6.86 points.
Even despite the high volatility on the market, components of the Australian Dollar’s significance measure showed strong correlations over the observed period. By having a look at significance measures of the AUD, which are calculated as an average correlations between all Aussie’s crosses, we should underline that main drivers here used to be domestic factors from Australia, while news from abroad had less important impact. With the average significance measure of 0.62, AUD correlations stood mostly below this mark, jumping only in time of local data releases on Wednesday and Tuesday.
No index could be called persistent in the past period, with places being interchanged and positions being gained and lost almost non-stop. The Euro composite measure went from slugging among the worst performers to surging with the leaders several times over, ultimately managing to become the last of the four indexes that finished the period with a weekly gain. The greatest growth was posted by the Kiwi’s and the pound’s gauges, with their advantage over the EUR Index at 0.4 and 0.5 points, respectively, while the weakest results came from the Swiss franc and the Greenback, both of which lost over 1.2% against the single currency.
The observed period was relatively calm for almost all observed currencies, save for the ones representing the Pacific region. Friday and Tuesday were marked with the highest volatility values. The later was the most turbulent day for the market. The RBA’s decision to cut interest rate sent the index to the period’s high of 1.86 points, while the AUD Volatility Index reached the 4.72 mark. The peak on Wednesday was also associated with changes in the rates of the Pacific currencies, while Friday’s turbulence was largely caused by the single currency’s movements.
Despite the generally upward development of the Euro significance measure, compared with the previous period, the average values of the composite and all observed EUR/USD components have notably reduced. Thus, components lost from 0.05 to 0.29 points. The most notable weakening was observed in the bond between EUR/USD and EUR/CAD, which started to decline on Monday, ahead of the RBC manufacturing PMI data release, and deepened its loses after the low US manufacturing PMI numbers.
