After spending more than a month below the baseline, the Canadian dollar managed to improve its position in the past week. The notably greater-than-expected Canadian employment data release on Friday caused the rise of the Loonie. Thus the CAD Index has spent the vast part of the week distinctly above its peers and ended the period with a 1.36% growth. The US economic news, published on Friday along with the Canadian, also led to the increase of the national currency. However, on Monday, the Greenback’s index has dropped below the baseline and did not manage to cross back above, ending the week with the second worst result. The worst result, in turn, was showed by the Kiwi’s gauge. The RBNZ’s rate cut pushed the index down, and by the end of the week it fell to the extremely low level of -2.33%.
Turbulence on the market finally picked up, putting the portion of elevated volatility at around 50% for all observed currencies. The Euro with its 50% was the third most volatile in this respect, having also the third highest 4.85 peak of the index. EUR/USD, EUR/CAD and EUR/NZD were the most volatile Euro’s pairs, both based on the indexes’ values and on the overturbulence portion in the latter’s case. Thus, EUR/USD and EUR/CAD volatility reached its maximum with the Friday’s US labor and Canada’s employment data releases, respectively. EUR/NZD index, in turn, spiked as the Kiwi was pushed down by the RBNZ’s decision to further cut interest rate.
The single currency’s significance measure was showing a downward trend during the past week. However, the movement was not smooth, and the composite had a few ups-and-downs and ranged from 0.29 to 0.67 points. Nonetheless, averages of the composite and its EUR/USD components were almost in row with the previous week’s values. The most notable changes occurred in EUR/USD correlations with EUR/JPY (-0.09 points) and EUR/CAD (+0.1 points). The aggregate, in turn, has risen by 0.01 points.
The USD Index spent another week below the baseline, continuing on a wave-like pattern it has employed since the beginning of the year. Interestingly, the Euro’s index did not act as a counterweight this time, as its movements kept in line with the dollar’s gauge’s for most of the week and ultimately amounted to a zero change. Meanwhile, the greatest change and the sharpest fall were posted by the Kiwi’s measure, which plunged 1.8% after the RBNZ cut its interest rate on Wednesday. The SEK Index finished the period as the leader on the other side of the baseline, making the decisive surge after a rise in Sweden’s inflation was reported on Thursday.
The market continued to be turbulent, with over 40% of volatility registered as elevated for all observed currencies. The dollar was among the calmest majors, both in terms of overturbulence portion and volatility swings, while the most impressive readings were posted by the yen and the New Zealand dollar. The former suffered 51% high portion of elevated volatility, while the latter pushed its index to the 10.8 mark in the highest spike of the week. The RBNZ’s rate cut that provoked the Kiwi’s across-the-board fall proved to be the most shocking event of the period, sending the aggregate turbulence measure to its high of 3.0 points.
The period’s correlation between the dollar’s pairs was, on average, lower than the monthly levels. The distributions of the components with the yen and the Kiwi were significantly skewed towards zero, marking their strong reactions to related events and pointing out relative significance of the two currencies. The Greenback, in turn, showed little signs of any influence as it was mostly driven by the movements of its counterparts.
The previous trading week was undeniably positive for the UK currency. The positive trend, which has already been established on Wednesday, continued throughout the next five working days. As a result, the Pound registered the fastest increase in value among all major currencies on the market. From another side of the coin, the biggest loser of the week used to be the New Zealand Dollar, which deteriorated by 2.85% amid the unexpected decision of the Reserve Bank of New Zealand to cut the benchmark interest rate by 25 basis points to 3.25%. Therefore, the Sterling managed to accumulate a 4.05% weekly gain versus this currency, while GBP/EUR and GBP/USD followed with a jump of 2.13% and 1.6%, respectively. Meanwhile, the Euro showed a negative tendency amid rising tensions between Greece and its creditors, while there is still no agreement between them as the June 30 deadline approaches.
Both GBP and market volatility readings stayed on high levels in the beginning of the June 10-16 period, while showing no excessive turbulence towards the end of the week, especially on Monday and Tuesday. At the same time, elevated volatility of both the Sterling and the market average was at satisfactory levels of 35%, widely matching the same readings of many preceding weeks. Among the GBP components, GBP/JPY was the most changeable last week, as its elevated volatility reached 45%. On the other hand, usually quiet and placid EUR/GBP cross was volatile in just 25% of all time, the same as the GBP/SEK currency pair.
Significance level of the GBP, calculated as an average correlation between different crosses of this currency, showed no stability during the observed time period. The periods with high correlations were regularly changed by the time slots with extremely low interrelationship between various currency pairs of the Pound Sterling. The latter fact drove the mean correlation coefficient (0.31) slightly to the downside and below the historical average of 0.33, as well as the half-year and annual averages. Meanwhile, a steep divergence between the development of GBP/EUR and GBP/USD crosses led to dynamic correlations between these currency pairs. Therefore, the violin for this component showed one of the longest tails on the market last week.
The EUR Index reported another soft period, wavering near the baseline for most of the week. Meanwhile, the pound was most determined in its growth, as its index started on an uptrend on Monday, and by Thursday stood more than one point higher than its closest peer, the franc’s measure. Both gauges went to their sharpest surges on Wednesday, when the pound was pushed up by strong wage growth, but the franc soured as the investors looked for safe haven amid discouraging Greek negotiations. On the other side of the baseline, the NZD Index was leading the tumble. It started to go south on early Wednesday, weakening in anticipation of the GDP data, and then lost 1.5 points when the numbers came in well below expectations. The second-worst was the dollar’s gauge that lost its footing on dovish FOMC statement.
The market was notably calmer this period than it was in the two previous weeks, with its elevated volatility portion falling from over 40% to 15% and the peaks of the index not reaching the 2-point mark. The Euro’s turbulence was in line with the overall mood, while the only index to notably stand out was the Kiwi’s gauge. Weaker-than-expected GDP growth released on Wednesday caused the Kiwi to plunge and managed its volatility index to spike to 3.1 points. The move had a strong effect on the overall volatility as well, lifting it to the period’s maximum of 1.3.
Despite largely directionless movements of the EUR Index, the currency’s significance measure managed to hold on decent levels above the 0.4 mark for most of the period, suggesting the Euro’s steadiness was well coordinated across the market. Long lower tails of the distributions were mostly attributable to the June 17-18 downshift, and the average correlation numbers, which edged up from the previous week’s values for the composite and most of the EUR/USD components, point out that the beginning-of-the-period strength was solid enough to outweigh the latter slip.
The USD Index remained below the baseline for the third week in a row, putting its month-on-month change into the negative territory. The dollar itself posted weekly losses against seven of its eight major peers and recorded positive change only against the Kiwi, which tumbled after the release of weaker-than-expected GDP. Meanwhile, the pound’s gauge was the first among the period’s leaders, as it pulled well ahead of its peers on strong wage growth and kept edging upwards till the end of the week. The week’s strongest upsurge, however, was recorded by the AUD Index as it rallied on Thursday against the background of the dollar’s weakness.
After two rather turbulent weeks, the market’s volatility subsided during the past period, driving the portions of elevated indexes’ readings down from just below 50% to barely above 10%. The most actively changing currency was the Swiss franc, as it was largely affected by growing concerns over the situation in Greece and the inflow of investors seeking safe haven. The dollar, in turn, was the calmest among the observed currencies, followed closely by its Canadian, Australian, and New Zealand counterparts. The latter, however, stood out by pushing its index to the week’s highest peak of 3.1 points, reached when the currency plunged with Wednesday’s weak GDP data.
The past period was quite erratic for the Greenback’s significance measure. The gauge had a few ups-and-downs and was fluctuating in the range between 0.11 and 0.69. The bonds between USD/EUR and other dollar’s pairs have somewhat weakened compared with the previous readings. Thus, average values of the observed USD/EUR components have lost 0.05-0.2 points. The most notable lowering occurred in USD/EUR correlations with USD/GBP. The only exception was the USD/SEK component, whose average was in row with the previous value. The aggregate, in turn, has declined by 0.1 points.
After establishing the stable tendency to grow in the beginning of the period, the British Pound decided to lead gains in course of the whole week, while outperforming the majority of its counterparts on the foreign exchange market. From Wednesday till Monday, the only Sterling’s competitor was the Swiss Franc; however, sharp losses of this currency on Tuesday resulted in the unconditional leadership of the Pound by the end of the period. It rallied the most versus the Kiwi (+2.4%), as the New Zealand’s currency continued to retreat for a third week in a row. Meanwhile, Australian Dollar was the second best performer last week, but it managed to accumulate just a 0.53% weekly increase in value, while the Sterling rallied 1.12%.
Last week was quiet in terms of volatility of the British currency, while from time to time the local UK fundamentals failed to cheer up market participants in order to force the currency to show any active changes. Elevated volatility indicator was just at 22% for the Sterling during the preceding week, even though it outperformed the market’s average gauge of 17%. Among the components, GBP/CHF was turbulent in 37% of all time, which is proved by more dynamic development of the Swiss Franc last week. On the contrary, the Pound/Kiwi cross was the most tranquil, showing the elevated volatility index of only 13%, as the NZD’s turbulence was negatively influenced by this currency’s predictable movement to the downside, while no noticeable spikes or drops occurred at any time, except Wednesday.
Significance of the UK currency, calculated as an average correlation between different crosses of the Sterling, showed no homogeneous trend during the June 17-23 time period. There were three distinct time slots, when the GBP composite was either above the mean historical level (Wednesday), below it (Thursday-Monday) or hovered just around this mark of 0.47 (Tuesday). At the same time, the average correlation coefficient stayed below the historical mean at 0.41 points. This fact underlined the dominance of low correlations, which used to have a considerable impact on the composite last week.
The past week was unfavourable for the observed European currencies. The EUR Index lost 0.74% over the period, with the single currency posting losses against all its peers but the Swiss franc and the Swedish krona. The pound was the only European currency with a positive change (0.02%). Meanwhile, the Greenback became the leader of the week. The rise of its index started on Monday, against the background of the Euro’s fall caused by the Greek issue. Despite the disappointing US durable goods orders data, the next day was even much more successful for the Greenback, and the USD Index reached its maximum value of the week (101.43).
In spite of the fact that the period was rich with influential economic events, the market volatility during the period was mostly below the historical level and slightly exceeded it only in 11% of time. In absence of notable economic releases from the Pacific region, the Kiwi and the Aussie became the most tranquil against the turbulent historical background, and their indexes spent only 2% of time above the 1-level line. Steady depreciation of the single currency in reaction to the Greek issue discussion did not raise the Euro’s volatility significantly above the historical level and left the currency among the calmest ones.
The Euro’s significance measure was very unstable during the past week. The gauge had several ups-and-downs and was fluctuating between 0.36 and 0.69. However, the average of the measure, as well as those of the EUR/USD components, remained practically unchanged compared with the previous values. Thus the average of the aggregate has gained only 0.04 points.
The Greenback managed to overcome a series of setbacks, and its index spent the past week above the baseline, becoming the best performer of the period with a 1.58% gain. The USD Index held the leadership during almost the whole period, however, it lost the completion to the yen over the weekend. The Greek issue, which was the main driver for the Euro for the past few weeks and pushed the single currency below all its peers, has affected the market as a whole, too. Thus fears of weakening of the Euro zone and neighbouring economies led to the strengthening of the yen, and the JPY index jumped to 101.98 mark, gaining 1.72 points.
Volatility all but flatlined again in the past period, with Monday to Friday readings virtually unchanged from the previous week’s low values. The high of the period’s volatility fell on the weekend, when the Greek crisis escalated after the breakup of negotiations on Friday. With the announcement of a bailout referendum by the Greek minister and the subsequent rejection of aid extension by the creditors, the country entered the new week a bank holiday and introduction of capital controls, causing the Euro to tumble and volatility to spike. The market’s average turbulence reached 1.8 points on late Sunday and 2.1 at Monday midnight, while the sharpest reaction came from the yen that posted the greatest gains against the single currency, sending its volatility index to 3.3 and 3.6 points.
In its average readings, the dollar’s significance was little changed from the previous week, with the measures continuing to post values below monthly readings, but in line with longer-term means. However, the dynamic situation edged south as the composite showed no spikes and the USD/EUR components’ distributions shifted some more values into their lower tails. The most notable deviation was reported by the USD/EUR-USD/JPY component , which usually kept all its values above zero, but in the past week dropped a heavy tail into the negative side.
The previous trading week was exceptionally positive for the Japanese Yen. The currency performed on the positive side during the longest part of the period, while hovering confidently above the baseline. The Yen continues to act as the safe-haven currency, when turmoil persists on the market. Last week was perfect in terms of turbulence among market participants due to the Greek debt crisis, which increased bids for the Yen quite considerably in time when the talks broke down on Friday-Saturday. As a result, the Yen rallied 1.61% during the past five days, outperforming all its main counterparts by at least one full percentage point.
Volatility of the Yen has clearly followed general development of this currency that took place from Wednesday of last week until Tuesday of this week. The save-haven currency is usually showing mild levels of volatility due to lack of influential fundamental events from Japan and subdued impact from abroad-happening events. At the same time, Greek crisis seems to have driven markets far outside the single currency area. Therefore, the Yen was one of the most volatile currencies Monday morning, thus also driving the elevated volatility reading as high as 40%, above the 37% average reading posted by the market.
The average correlation coefficient for the Japanese Yen was again somewhat affected by the post-Greek events, when the currency showed phenomenal fluctuations on Monday morning. The composite’s five-day mean produced a reading of 0.5 points, below the historical average correlation of 0.57 points but far above all monthly, six-month and yearly numbers of 0.39, 0.4 and 0.44 points, accordingly. Correlations were predominantly concentrated above zero, while only a violin for EUR/JPY & USD/JPY demonstrated longer tails, extending towards –0.5 points.
The Greek debt deal continued to be the central issue during the past week. The Greek crisis had a particularly strong impact on the yen, which acted as a safe-haven currency and surged up over the weekend, gaining 1.7%. The rise of the yen has continued till the end of the period, making it the week’s best performer with a 1.79% gain. The period was much less successful for the Kiwi and the Swedish krona, which were the main losers and ended the week with 1.53% and 1.47% loss, respectively. The decline of the krona was caused by the Riksbank’s decision to lower the interest rate from -0.25% to -0.35%. The drop of the Kiwi, in turn, was provoked by a number of events, particularly by the ANZ Business Confidence and the fall of the bi-weekly milk auction.
After a two-week lull the level of the Euro’s and the market’s volatility notably rose. Thus, the Euro has spent 47% of time above the historical level. The portion of the market’s elevated volatility was slightly smaller at 46%. The most volatile currencies were the Swiss franc and the Swedish krona, which both held above the 1-point level in 54% of time. Furthermore, the most notable peak was reached by the SEK Volatility Index and was associated with the Swedish interest rate cut, which pushed the krona down, putting the index at 6.4. The EUR/SEK jump was even more impressive – the pair’s index surged to 9.8.
During the period the composite was varying within a wide range of 0.25-0.92 points. All the components showed very strong bonds at the beginning of the trading week, putting the average correlation well above the long-term values. The rest of the period, in turn, was associated with feeble correlations between the Euro pairs.
Summary
[ul]
[li]Professors’ confidence considerably deteriorated in June compared with the preceding month. While the global six-month economic sentiment index remained unchanged, the three-year outlook markedly worsened, led by a precipitous decline in the Asian-Pacific and European long-term sentiment indexes.
[/li][li]Despite a breakdown in aid talks between Greece and its international creditors, the country’s default on its loan repayment to the IMF and growing fears of Grexit, professors surprisingly remained calm. Europe’s six-month economic sentiment index retreated just by 0.01 point, whereas its long-term gauge plunged to 0.53, down from 0.61 in May.
[/li][li]The North America has finally started to recover after a wobbly start to the year. Consequently, professors felt much more optimistic about the region’s economy and its performance in the short-run. However, their confidence appeared to be dispelled when they assessed the economy’s long-term economic potential. The three-year economic sentiment index decreased by 0.08 points to 0.53, with the reading staying just slightly above the crucial 0.50 threshold.
[/li][li]The Asian-Pacific economy appeared to be the worst performer in June. Its six-month economic sentiment index declined by 0.05 points in the reported month, while the long term index plummeted by 0.16 points to 0.69.
[/li][/ul]
The past five trading days were caught between two very dynamic weekends, but their own developments were no less intense. While the Euro spent the period shaking off its late Sunday losses, the effect of the Greek crisis seeped into its peers. The franc and the krona surged on Monday, but were both knocked down by the policy makers, with the CHF Index sliding back to baseline after the SNB confirmed its intervention in the Forex market, and the krona’s gauge tumbling on the Riksbank’s rate cut and the expansion of the bond-buying plan. The yen and the dollar were the other currencies to drive investors’ attention amid the Greek debt uncertainty, and both of them remained on an uptrend throughout the week. Among other news, the Loonie was hit by lowering oil prices and weak GDP, and composed the worst performers’ duo together with the Kiwi that slipped on a batch of feeble data on Tuesday.
The week was relatively turbulent for majority of the observed currencies. The US dollar, in turn, was among the calmest ones in terms of elevated volatility portion. However, several notable spikes of activity followed the domestic economic news releases. Meanwhile, the Swedish krona became the most volatile currency, as it was highly correlated with the troubled Euro against the background of Greek issue discussion, and, in addition, reacted strikingly to the Riksbank’s monetary decisions.
The dollar’s significance measure took a hard hit from the Greek debt crisis, falling well below its usual levels and lagging behind most of its peers. The greatest influence came from the yen, which turned many components red in the beginning and the end of the week. USD/EUR-USD/JPY correlation turned many of its values significantly negative, highlighting the opposition between the single currency and Asian safe haven. Among other currencies, the pound and the franc notably dominated the Greenback in the middle of the period, preventing the USD composite from holding above the 0.4 mark even as the currency’s strengthening was gaining pace.
Despite many important events from the UK alone that could potentially have a substantial influence on performance of the British Pound last week, this currency rejected to move far away from the baseline and traded only in a moderate bullish trend throughout the period. The GBP Index showed no major spikes or falls, except some weakness on Tuesday, which drove the currency indicator back down to 100 points. As a result, the week was ended with an increase in value of just 0.03%. The Sterling was showing a clear upward and downward tendency against the same number of other currencies. The highest surge was posted against the Australian Dollar, which was depressed by weak retail numbers released Friday. On the other hand, the safe-haven nature of the US Dollar and Japanese Yen forced these two currencies to climb 1.52% and 1.6% versus the Pound, respectively, and the main reason for this development was the ongoing Greek crisis.
Volatility reading of the Sterling was undeniably more active than the currency’s general development index. There were clear periods of uplifted turbulence on the market, caused by important data publications all across the world including Britain. Moreover, one of the leading roles in volatility was played by the Greece, as the referendum on Sunday and the consequent rejection of creditors’ proposals forced many currencies to react strongly in the beginning of Asian trading on Monday. In the meantime, the elevated volatility of the Sterling has perfectly matched the same average indicator for the market at 38%.
Significance level of the GBP, calculated as an average correlation between different crosses of this currency, showed no stability during the observed time period. At the same time, the composite has mostly reflected important episodes of the working week and remained quite silent for the rest of the time. Meanwhile, the average significance coefficient of 0.33 stayed somewhat below the historical average of 0.36. Moreover, correlations were also slightly weaker than 20, 130 and 250-day averages. Among components, the majority of them have at least once fallen below zero, which resulted in fairly long tails of violins.
The yen was the star of yet another period, now harboring both European and Asian investors as the Greek crisis and Chinese stock tumble prompted them to seek safe haven in the Japanese currency. Meanwhile, the Chinese turmoil had quite the opposite effect on the Aussie. Hit by underperforming retail sales and receiving a lot of pressure from the developments in Australia’s biggest trading partner, the AUD Index crashed into a downtrend and finished the period with a 2% weekly loss.
The market faced another turbulent period, with most volatility brought in by the growing yen and the falling Aussie. The Euro, while being in the heart of the market-moving events, stood among the least volatile currencies and rarely acted as a primary cause for across-the-board moves. At the top of the stability list was the Swedish krona, which broke out of the roller coaster of the two previous weeks and whose currency index froze on the baseline after losing 1.5% on the Riksbank’s July 2 decision to cut rates.
The correlations of the Euro pairs were mostly below the previous weeks’ readings, as the single currency was relatively unmoving in anticipation of further developments in the Greek debt crisis and hardly reacted to any other news, limiting its significance on the market. The Aussie and the yen turned out to be the ones with the most notable market drivers during the period. The former strikingly reacted to the plenty of domestic economic events, including retail sales, interest rate decision and employment data release, all fueled by the pressure of Chinese developments. The yen, in turn, was drown by trade balance and securities investment data releases as well as the fact that in current conditions it is considered a safe haven for investors.
Having enjoyed an uptrend alongside the yen’s gauge during the pre-referendum week, the USD Index halted its advances in the past period, and after a couple of bounces off the baseline entered the new week back on the July 6 level. Its Japanese peer also finished the period on the base level, thought it did see considerably more action. The JPY Index surged earlier in the week, fuelled by uncertainty over Greece and the plunge of Chinese stocks, and then slumped on Friday as the mood turned positive on Greek negotiations, thus going two points up and two points down in the span of four days. Meanwhile, Friday’s developments pushed the EUR and the CHF Indexes up, allowing them to post weekly gains within the top-3 list. In the depreciation area, the Aussie had the bumpiest ride, shaken by the situation in China and falling commodity prices. Thursday’s employment data offered the AUD Index some support, but on Friday it slid back to the week lowest levels and ended the period with the greatest weekly loss.
More than half the time during the week the turbulence of both the market and the Greenback was above the average historical levels. However, the volatility spikes were not particularly impressive. Against the background of the Greek crisis, the safe haven yen became the most turbulent currency with 72% portion of elevated volatility. Slightly behind the leader was the Aussie, which was reacting sharply to the Chinese turmoil and Australian economic releases throughout the trading week. The Swedish krona, in turn, was less changeable than its counterparts, but, nevertheless, it was over-turbulent in 40% of time.
All the red on the USD/JPY components’ plots suggests that the yen’s pull greatly outweighed the Greenback’s influence on the market in the past period, and it was the Japanese currency that dictated the movements of the major pair. The yen’s significance was indeed the strongest among its peers, with its measure holding in the solid area above the 0.6 mark. The second-strongest was the Aussie’s gauge, thought it seems that the Australian dollar did not have an equally dramatic effect on its US counterpart. The Greenback itself kept its significance composite on moderate levels between 0.25 and 0.45 points, with most of its USD/EUR components holding around their averages.
[B]Quarterly Report[/B]
Finding a silver lining throughout the previous quarter proved to be a difficult task. Nevertheless, the risky currencies have performed relatively well compared to their safer counterparts since the previous report. Three months ago, there were good reasons to be hopeful, but in the end it turned out that there was too much complacency in the market and the world sighed in relief a little too soon. Back in April ‘Grexit’ was only a hypothetical event, a word used to scare countries who misbehaved and were reluctant to implement structural reforms, but just a few days ago one less country using the Euro was about to become a reality.
Everyone is likely to agree that the problem itself is relatively small compared to the Euro zone as a whole, but it does not take much to deal a lot of damage to the monetary bloc. Convulsions throughout the periphery in 2012 proved the contagion risks are more than just significant, and, despite a number of mechanisms implemented by the ECB since then, the threat still lingers.
It is important to understand that the monetary bloc is not a race. It is not about winning. It is about getting to the finish line together, and this time around we failed to see determination of the European leaders to stick to this principle, as they do not allow those who cannot keep up the pace to stay. Perhaps it is not in the long-term interest of the bloc to leave the wounded behind.
There is no doubt that Greece was mismanaged by the previous governments, but it mostly shows that the Euro zone has a lot of work to do in bringing the countries closer together through better monitoring and guiding. The recent events have also forced us to rethink statements such as ‘whatever it takes’. Mario Draghi and many other officials were ready to accept Greece exiting the Euro zone, and this a strong signal for the other countries that no concessions will be made and no kind of blackmail will work.
The past six months leave us with a lot to think about. Prospects of the long-anticipated rate hike in the United States later this year coupled with the struggle of Greece to remain in the Euro area are unlikely to let the markets relax for a second. As September is getting closer, anxiety will be building up among the market participants, who will be closely scrutinizing every single gesture, every single sigh of Fed Chair Janet Yellen. Yet, misfortunes never come alone. The Chinese economy’s performance will dictate its rules over the course of coming months, particularly after the recent stock rout. Thus, make sure you are on the alert.
Trade thoughtfully and take care,
Dukascopy Research Team
In the first three days of the period it seemed that the Sterling was going to establish itself as the loser of the week. However, the situation started to change dramatically on Friday and this currency registered a strong 2% increase in value in just three working days. As a result, by Tuesday it became the period’s leader, while gains exceeded one percentage point versus all but one currency, Only EUR/NZD advanced 0.61%, while EUR/JPY and EUR/CAD rallied most by 1.9% and 1.3%, correspondingly. The completely opposite scenario was shown by the Japanese yen last week, which started trading as a leader, but erased all gains in five trading days.
Turbulence of the British currency had a tendency to increase day by day during the previous five-day trading period. Moreover, everyday spikes in volatility have positively influenced the elevated volatility indicator as well, which fell slightly short of reaching the 50% mark. In addition, this time the market’s average reading managed to match the Sterling’s turbulence at 49% of all time. Among the components, GBP/JPY registered an uplifted volatility situation in 63% of all time during the observed period, as the Yen was preparing for this week’s meeting of the Bank of Japan. Employment statistics from Australia has also left a footprint on the weekly performance of GBP/AUD, which was the second most volatile currency pair of last week, as its Volatility Index was above the normal level during 57% of all time.
Without mentioning Tuesday’s correlations, it should be underlined that the Sterling’s currency pairs failed to register any noticeable united movement during the period ended July 14. Significance of the Pound, calculated as an average correlation between different crosses of this currency, used to be unusually low and the mean correlation coefficient has only averaged 0.33 last week. This reading was below monthly, six-month and annual numbers of 0.36, 0.35 and 0.38 points, respectively, even despite a surge that happened on Tuesday. Therefore, violins used to have quite long tails, as many correlations were located confidently on the red side.
As panic around the Greek debt issue subsided with the attainment of a deal, the previous weeks’ market shakers got replaced by the new main performers. Thus, the yen’s rally turned into a downfall on July 9, and while the JPY Index hung between -1.5% and -1%, the pound’s gauge took its place at the top. After sliding on Wednesday, July 8, the GBP Index picked up on Friday, and pulled well ahead of its peers at the open of the new week. The next days only widened the gap, as the pound was boosted by the BoE Governor’s comments on proximity of a rate hike, the index finished the period with a 3% gain. The period’s second-best performer was the USD Index that got a push from Yellen’s reassuring speech and some positive data on Wednesday. The same day brought the Kiwi’s and the Loonie’s gauges down, with the former weighted down by Yellen’s comments and falling milk prices, and latter plunging with the BoC rate cut.
Market turbulence receded in the past period, with the portion of elevated volatility decreasing from 49% to 33%. The Euro’s aggregate measure lost 10%, while the greatest declines occurred in the readings for EUR/AUD (from 50% to 34%), EUR/JPY (from 51% to 21%), and EUR/CHF (from 45% to 15%). The most volatile currencies, in turn, were the pound and the Kiwi, both overturbulent in 41% of time. The period’s sharpest reaction came from the Loonie, whose volatility index jumped to 4.8 points after the BoC cut its interest rate. Among the Euro’s pairs, however, the highest peak was reached by EUR/SEK, which surged on weak Swedish CPI.
After several anxious weeks when the Euro was reacting strikingly to the Greek issue discussion, the single currency finally had a quiet period without sharp changes of the rate and, thus, lower correlation between the pairs comparing to the monthly levels. Nevertheless, there was a couple of economic events that notably affected the currency and its significance measure.
As the Greek crisis passed into the background, and searching for a safe haven stopped being the main priority for investors, the interest rates’ race came back into focus, bringing forward new leading performers. The pound and the dollar were both boosted by the promises of not-too-distant rate hikes, with the indexes solidifying their dominance over the peers on Wednesday and moving up hand-in-hand until the end od the period. Wednesday also saw the tumble of the commodity currencies, as the CAD and the AUD Indexes lost around 1 point during the Blue Period, while the Kiwi’s gauge carried its decline over into the next day, ending up more than 2 points below the baseline. The Aussie’s measure, unlike its fellow-sufferers, pared its losses on Thursday and finished the week with the third greatest gain.
Against the background of the turbulent start of July, the previous trading week appeared rather calm, as only 24% of market volatility values were above the average historical level. The yen seemed especially calm, showing significantly increased volatility at only 12% after two weeks of great over-turbulence. Meanwhile, the most impressive readings were posted by the pound and the New Zealand dollar, both suffering 33% high portion of elevated volatility. However, the period’s sharpest reaction came from the Loonie, which tumbled with the BoC decision to cut the interest rate. Its index reached the 4.8 mark, but the USD/CAD index exceeded the 5.0 level and, thus, demonstrated the highest reading among the Greenback’s pairs during the period.
As the yen’s rally came to an end, its hold over the correlations on the market subsided, and the dollar’s significance measure edged up closer to its usual range. Among the USD/EUR components, the ones with USD/JPY and USD/CHF underwent the greatest changed. The former shifted away from the lower values, bringing its average from weakly negative to moderately positive and in line with long-term readings. The latter, in turn, strengthened above historical, pointing out the past period’s synchroneity between the Euro and the franc.
After falling around one percentage point on Wednesday, the first day of the period, the Canadian Dollar established itself confidently below the baseline for the rest of the week. As the same time, losses of the North American currency were initially overshadowed by the New Zealand Dollar, as the NZD Index slumped below 98 points by Thursday morning amid speculations that the Reserve Bank will cut interest rates this week. However, the Kiwi managed to erase losses in the early Monday trading, thus making it inevitable for the Loonie to be the biggest loser of the period. Meanwhile, the latter was quickly being approached by the Swiss Franc, which eventually lost 0.67% on a five-day basis, but was close to plunge as much as the Canadian Dollar, which in turn lost 1.05%.
Turbulence of the Canadian currency has predominantly respected the overall performance of the CAD Index. Except a strong spike in the volatility index on Monday, the currency was trading in a fairly flat way during the whole time period from July 15 until July 21. As a result, the elevated volatility indicator has barely exceeded ten percentage points and stood at just 15%. However, the Dukascopy Bank Volatility Index showed even smaller reading for the elevated volatility at just 10%. Among currency pairs, GBP/CAD was the most turbulent last week (30%) due to variety of fundamentals from Britain.
The Canadian Dollar’s correlations were somewhat below the historically-recorded levels last week. Significance of the Canadian currency, calculated as an average correlation between different CAD crosses, posted no substantial and valuable developments, only except Wednesday. Weaker movements were mostly caused by the lack of fundamentals at the end of the previous week and on Monday/Tuesday of this week. Among currency pairs, the highest correlation coefficient of CAD/EUR pair was observed with CAD/CHF cross during the period, namely 0.75 points.
