Growth-wise, the past five trading days were undoubtedly the Kiwi’s period, whose index was set on climbing out of the pit it fell into on July 15-16. The defining surge came at the start of the week, when the NZD Index jumped 1.1% after New Zealand’s Prime Minister said that the currency already fell further and faster than expected. As the Kiwi was long since deemed overvalued and hurting the economy, the comment was taken as a good omen, pushing the NZD up from the multiyear lows it reached the previous week. As the idea was, to some extent, reiterated in the RBNZ’s statement on Wednesday, the index went into another rally, spiking to 102.4 points. Meanwhile, most of the other observed indexes spent the period largely below the baseline, with the Aussie’s, the pound’s, and the Loonie’s measures posting the bottom-three results.
As the situation with the Greece’s debt became less critical, the single currency has stabilized, and fluctuations of the Euro paled in comparison with the last few weeks’ turbulence. The decline of the volatility, which started in the previous week, has continued throughout the past period. Thus portions of the elevated volatility of the Euro’s aggregate measure and market composite have lost more than 25% of the previous values, reducing to 5% and 6%, respectively. The most turbulent component was the EUR/NZD index, which spent 24% of the time above its historical level. It also had the highest spike among the peer pairs, as it surged to 3.4 mark when the RBNZ monetary policy statement was published on Wednesday.
Much like the volatility readings, the averages of the Euro significance measure and its EUR/USD components have notably decreased compared with the previous week’s values. Thus the composite has lost 0.08 points, whereas averages of the components dropped by 0.04-0.28 points. However, there were two EUR/USD components – correlations with EUR/JPY and EUR/CHF, – for which the period provided some strengthening ground, and which have increased by 0.02 and 0.08 points, respectively. In total, the distributions of the composite and almost all components have shifted down, and their lower tails became heavier.
The period was mostly notable for the recovery of the previous week’s main losers, while most of the other indexes stayed largely unchanged from their past levels, posting only moderate losses. The week opened with the NZD Index surging above it peers after New Zealand’s PM said that, amid concerns over the overpriced currency, the Kiwi has actually fallen faster and further than expected. The stance was somewhat supported by the RBNZ’s statement, helping the index keep the best performer’s position up to Thursday morning. Eventually, however, the Kiwi’s gauge started to ease down, and was outpaced by the EUR Index, which entered an uptrend as the concerns over the Greek crisis cooled down. Meanwhile, the AUD Index was the only measure to post over 1% weekly loss, taking its main hit from disappointing Chinese Manufacturing PMI on Friday.
The past week was marked by a notable lowering in the portions of elevated volatility of the most observed currencies. The Greenback was no exception, and its index held above the historical level in only 20% of the time, losing 6% from the previous period’s readings. However, that was the third greatest value, with only the Aussie and the Kiwi posting bigger elevated volatility portions of 21% and 33%, respectively. For the market in general, the period was even more tranquil, as the aggregate volatility index spent only 11% above the 1-point level, 13% less than in the previous week.
Compared with the several previous trading weeks, the correlations between the USD/EUR and other dollar’s pairs were mostly above the average, as the Euro was relatively calm after the weeks of overstress against the background of active Greek issue discussions. It is worth noting that the average correlation between the USD/EUR and the USD/JPY increased more than twice, as during the past month the yen, as a safe haven currency, had a negative bond with the Euro.
During the period the majority of the currency indexes was varying in a range of -1% - +1% from the base value. Only a few gauges – the NZD, EUR and AUD indexes – went outside the boundaries, with the later tumbling below its peers, and the first two finishing the period well above others. While the Euro was appreciating throughout the whole period, fuelled by improving sentiment about the Greek issue, the Kiwi was notably fluctuating, posting gains after the RBNZ’s rate statement and Governor Wheeler’s optimistic economic conditions assessment, and weakening at the back of decreasing trade balance announcement.
With its rapid descent and early Tuesday rebound, the Aussie became the week’s second most volatile currency, topped only by its New Zealand counterpart. The greatest portion of turbulence was contributed by the AUD/USD and GBP/USD components, ushered not only by the Aussie’s moves, but also by its peers’ fluctuations, as the dollar and the pound both posted over 25% elevated volatility portions. Meanwhile, the period’s sharpest reaction came from AUD/NZD, when the Kiwi surged against its peers after the RBNZ eased its opinion on the currency’s excessive strength. The move was notably critical for AUD/NZD, as its 3.98 volatility index spike stood well above the Kiwi’s mean turbulence surge of 3.16.
The Aussie’s across-the-board weakening boosted its significance measure, lifting its pairs’ average correlations above the historical and making the distributions trim their lower tails. However, in terms of market influence, the Australian dollar competed with its New Zealand counterpart and lost, meaning that the AUD/NZD was largely affected by the Kiwi’s pull. Thus the AUD/NZD component was the only one among the AUD/USD combinations to post a lower-than-historical average and stretch the distribution into the negative area.
The Euro index was rather stable past week, and even spent the most of the time above the baseline. However on the last day after the disappointing German employment data and CPI the index fell below the historical level and ended the period with the 0.23% loss. The pound, which showed the upward trend since the release of the UK GDP on Tuesday, on the contrary, began to grow stronger against the background of the German news and became the leader of the period (+0.89%). The much less fortunate Swedish krona, the Aussie and the Swiss franc, which formed the top 3 losers and dropped by 0.43, 0.61 and 0.76 points respectively.
After the severe decline of the volatility last week, the overall level of the elevated volatility has slightly recovered during the observed period. Thus the market and the aggregate Euro index have spent more than 20% of the time above the historical level. However the most turbulent currencies of the period were the Swiss franc, the Aussie and the Greenback. Portions of elevated volatility of these indexes were 30%, 29% and 27% respectively. USD and AUD had also the highest peaks among the peer currencies behind only the Kiwi, which surged to the 3.15 mark at the time of the RBNZ Governor Wheeler speech. Spikes of the single currency volatility as well as the DC Volatility Index were much lower, only 1.5 and 1.43 respectively.
Despite the fact, that the past period was quite unstable for the Euro significance measure, and it ranged of 0.23 to 0.5, the average values of the aggregate and the EUR/USD components stayed almost unchanged compared with the previous week. Thus the most notable changes was observed in EUR/USD correlations with EUR/AUD, which gained 0.14 points. The largest weakening, in turn, was in bond between EUR/USD and EUR/CHF—the component lost 0.1 point. Compared with the long-term values, the composite and all observed component have slightly lowered. However the decline did not exceeded the 0.11 points.
Continuing the tendency of the previous period, the most of the time the Greenback has spent below the baseline. However the USD index managed to overcome the historical level and ended the week with the 0.1% gain. Thus the US dollar has overtaken most of the peer currencies, losing only the Kiwi (+0.26%), the Aussie (+0.52%) and the pound (+0.83%). On Tuesday after the UK GDP data showed the economy growth, GBP started to rise and became the best performer of the period. Nonetheless the most spectacular increase was made by the Kiwi, which started to climb ahead of the RBNZ governor Wheeler speech and on Tuesday evening reached the 102 level.
During the trading week all the volatility indexes without exceptions spent most of time below the average historical level. The Greenback with 28% portion of elevated volatility and higher than 4.5 spike was among the most turbulent currencies. The yen, in turn, became the most tranquil one, as the peaks of its index did not exceed the 2.0 level and, moreover, the elevated volatility was observed in only 16% of time.
Although the US dollar significance measure has risen by 0.32 points during the past period, the average values of the aggregate and the most of the components have slightly decreased. Thus compared with the previous week’s values the USD composite has lost 0.05 points, while the USD/EUR components has shed 0.02-0.12 points. Comparing the averages with the long-term values, the changes of the composite and observed components did not exceeded the 0.06 points. The only exception was the bond between USD/EUR and USD/JPY, which has strengthened by 0.23 points in comparison with monthly value.
There were no united movements among different currencies during the observed period. On one hand, the Aussie ended the week substantially above the base value, and it was accompanied by USD, GBP and JPY gauges. On the other hand, the Kiwi resumed depreciating and fell 1.59% in five trading days. Additionally on the downside, the Canadian Dollar, Swedish Krona and Euro managed to limit their losses up to 1%. The New Zealand currency showed a rapid descent at the back of pessimistic fundamentals, including business confidence and labour market.
With two significant spikes in volatility, the Aussie became one of the most turbulent currencies on the market during the reported time period. This currency has probably been topped only by the US counterpart, whose volatility gauge climbed above 4.5 after a release of the Employment Cost Index, which showed American workers suffered the worst pay rise since 1982. Therefore, elevated volatility for the AUD/USD component stood at 33%, well above the Aussie’s and market averages of 27% and 24%, respectively. Speaking further about this currency pair, its highest turbulence index skyrocketed up to 5.78 on Friday and was noticeably bigger than the overall AUD maximum gauge of 3.14.
There were two main reasons, which kept the Aussie’s significance measure on exceptionally high levels during the period. At first, correlations were stable around 0.5 points from Wednesday of the previous week until Monday, the period when the pair posted little changes in its value. Secondly, average correlations were boosted by the RBA key rate decision on Tuesday, when the composite was lifted well above the historical mean. As a result, distributions cut their lower tails, and only the one between AUD/EUR and AUD/NZD was stretched below zero. Meanwhile, the competition between the Aussie and Kiwi in terms of market influence is still visible.
The Europe’s shared currency has recovered after the previous week’s fall and added 0.5%, becoming the third best performer of the period. The Aussie was the clear leader of the past week. The RBA decision to leave its monetary policy stance fully unchanged pushed the AUD index up, and it has reached the unusually high level of 101.93. A few less fortunate the pound. Starting on Tuesday GBP showed the upward trend and could compete with the Greenback for the second place. However the index lost 0.84% right after the BoE’s Super Thursday data came out and ended the period with 0.02 points loss. The franc and the krona, in turn, continued the trend of the previous period and kept the place of the main loser of the week.
The last day of the previous trading week should by observed separately from the rest of the period as almost all volatility indexes, with the exception of the yen, spent more than half the time above the average historical level and, moreover, reached period’s highs after the disappointing releases of the US labor price data as well as Canadian GDP. The pound volatility index was the only one, which reached its maximum later on Thursday against the background of the batch of economic releases from BoE, moreover, it became the most turbulent currency of the current trading week in terms of elevated volatility portion.
Despite the fact that the Euro significance measure had a few ups-and-downs and ranged from 0.16 to 0.56 during the observed period, the gauge has finished the period almost at the same level it was when it started. The average values of the composite and the EUR/USD components also remained almost unchanged compared with the previous week. Thus the EUR measure has lost only 0.03 points. The most notable strengthening (+0.11), in turn, was observed in the bond between EUR/USD and EUR/SEK. Comparing with the long-term values most of the averages have shifted down and lost 0.03-0.07 points.
Summary
[ul]
[li]Summertime sadness appeared to dominate among academia experts, as professors’ mood darkened in July amid worries over the Greek debt crisis and the country’s future within the Euro zone as well as China’s stock rout. However, the three-year economic sentiment indexes for all regions surged in the reported month, signaling economists’ confidence that the world economy will strengthen in the long-run.
[/li][li]While the six-month economic outlook for the global economy deteriorated in July, with the corresponding index declining by 0.04 points, the three-year sentiment index rose sharply.
[/li][li]After the Greek parliament approved a raft of painful austerity measures to unlock a third bailout package worth 86 billion euros, and the BoE Governor hinted that UK interest rates could rise “at the turn of the year”, professors’ concerns were alleviated. Moreover, the three-year sentiment index soared to 0.68, the highest level since June 2014.
[/li][li]North American economy saw the gauge measuring professors’ economic expectations over the course of next six month falling by 0.06 points. Nevertheless, professors were increasingly confident that the region’s economy would build momentum in the long-run.
[/li][li]Experts were less optimistic about the Asian-Pacific short term economic future in light of the recent Chinese stock market rout and the government’s vain attempt to support the financial system. However, the three-year sentiment index hit a one-year peak.
[/li][/ul]
The sharp spike of the Aussie, caused by the positive RBA statement, allowed the AUD index to significantly draw away from its peers and become the best performer of the past week. The period was also successful for the Greenback, and after a few weeks spent mostly in the depreciation area, the USD Index finally managed to cross above the baseline and finished the period with a 0.43% gain. The pound, in turn, was less fortunate, and after the BoE’s Super Thursday the GBP Index dropped below the 100-point line. Thus the previous week’s leader was among the main losers of the observed period.
Volatility fell back from the previous week’s values, losing around 10% of overturbulence and 0.1 point from the average levels. The most volatile currencies were the Swedish krona and the pound, as they both suffered multiple spikes and falls throughout the week. These currencies were also the most volatile ones in the dollar’s pairs, with USD/SEK and GBP/USD posting close to 30% overturbulence. Meanwhile, the highest peaks of volatility among the major pairs were reached by USD/CHF, USD/CAD, and EUR/USD, as they seemed to have the strongest reaction to the Greenback’s initial upward movement on Friday.
The past week was marked by a slight strengthening of the Greenback’s significance. The average values of the USD composite and most of the USD/EUR components have added 0.04-0.11 points compared with the previous period. However, a notable fall was observed in correlations containing USD/GBP. After the BoE’s data release on Thursday all USD/GBP components have weakened, some even dropping below zero. Nevertheless, the most notable changes were observed in USD/EUR correlations with USD/JPY and USD/NZD, which gained 0.11 and 0.08 points on their long-term values.
There were three distinct categories of currencies in terms of development showed during the observed time period. The first one included three bullish performers — the Euro, Canadian Dollar and Swedish Krona. All of them surged more than 0.5% last week, with the common European currency rallying as much as 1.58% in five days, helped by Tuesday impetus provided by a reached agreement between Greece and the institutions. The second group collected three other currencies, which dropped more than 0.7% - the Yen, Aussie and Swiss Franc. In the meantime, the third group had components, which showed a weekly growth of around zero percent. The Kiwi and Sterling added 0.06% and 0.04%, respectively, while the Greenback was down 0.11%.
Elevated volatility of the Pound Sterling has broadly matched readings of many preceding weeks, as it stayed marginally above the market mean at 31% versus 26%. Currency pairs that used to be turbulent the most were GBP/CHF and GBP/CAD, whose elevated volatility jumped as high as 40%. The Canadian Dollar, in particular, was substantially influenced by a several important data releases, which covered construction industry and labour market. Apart from the Sterling, which definitely had some volatility to show last week, the Australian Dollar was one of the most nervous currencies as well, as its Volatility Index exceeded the readings of other currencies for three times, when employment data, RBA monetary policy statement and NAB business confidence were published on Thursday, Friday and Tuesday, correspondingly.
While we have observed three different categories among currencies in terms of their weekly performance, the Pound has individually posted two clear periods of contrasting correlation trends. All in all, it seems that the composite, which is calculated as an average correlation between different crosses, succeeded in touching the whole spectrum of correlation values, up from just 0.15 points to 0.88 points. As a result, distributions prolonged their tails below zero. Meanwhile, the Sterling’s mean correlation coefficient picked up to 0.47 points last week, higher than all monthly, six-month and yearly averages.
The past five trading days proved to be challenging for the market, as only the Euro and the Swedish krona managed to finish the period with a positive across-the-board change. Both currencies were strengthening at an equal pace throughout most of the week, until the krona made a critical move on Thursday. Fuelled by better-than-expected inflation data, the SEK Index skyrocketed to leave its closest peer more than 1% behind. On the other side of the baseline, the most dramatic changes were guided by the People’s Bank of China, as two consecutive devaluations of the yuan hit the Pacific currencies and put pressure on the dollar. The AUD and the NZD indexes lost around 1 point in each of their sharp momentary reactions to interventions on Tuesday and Wednesday, while the dollar’s gauge spent most of August 12 sliding from 100.2 to 98.8 as hopes for September rate hike by the Fed were undermined by the Beijing’s move.
For about a month now the portions of elevated volatility of both the Euro and the market kept on a rather low level, but the past period finally saw the activity pick up. Thus the Euro composite doubled the time spent above its historical average. Its most turbulent components were EUR/CHF and EUR/CAD, which held above 1-point level for almost half of the past week. The highest peak, in turn, was reached by EUR/SEK. The unexpected increase in Swedish inflation pushed the krona up, and EUR/SEK volatility surged to 5.85. The Pacific currencies also showed quite high surges, reacting sharply to the Chinese economic news.
The past week was marked by rather notable changes in the averages of the EUR/USD components. Thus, compared with the previous week, the bond between EUR/USD and EUR/GBP has strengthened by 0.22 points, whereas correlations with EUR/CAD and EUR/NZD lost 0.15 and 0.18, respectively. The long-term values of these components decreased by 0.09 and 0.14 points, while the EUR/USD and EUR/GBP correlation rose by 0.13. The composite, despite the changes in the components and rather high turbulence during the period, stayed unchanged comparing with both the previous period and the monthly values.
During the past week all of the attention was focused on the situation with devaluation of the yuan. The so-called “one-time correction” in the yuan did not go unnoticed for the Pacific currencies. Thus despite optimistic speeches from the RBA, the Aussie and the Kiwi finished the period with the 0.99% and 1.76% loss, respectively. The Greenback’s result was not much better, and after the positive tendency of the two previous weeks, the US dollar lost 0.6% in the past period. The period was quite successful for the European currencies, as their indexes finished the week above the 100-points level. The greatest gain was posted by the SEK Index, which jumped well above its peers after the Swedish CPI release.
Volatility soared in the past period, with the measure of overturbulence picking over 20% from the previous readings for both the market and the dollar. The gauge was mostly fueled by Tuesday’s and Wednesday’s moves, as the market reacted to the yuan’s devaluation. The sharpest responses to the PBoC decision came from the Aussie and the Kiwi, whose indexes surged to 3.5 and 3.2 points after the second intervention. The absolute highest peak, however, was reached by the Swedish krona’s gauge, which jumped to 3.9 points as the currency soared with improved inflation data released on Thursday.
The average correlation of the USD pairs was very changeable during the week, varying in a wide range of 0.3-0.75 points. The mean levels of almost all USD/EUR components were above their monthly readings, which pointed out relative significance of the Greenback. At the same time, the bond between USD/CHF, USD/SEK and the most traded pair was weaker than its half-yearly levels, and the krona became the main competitor for the dollar.
Unlike our previous reports on the Pound, this one is unique in terms of this currency’s weekly performance. Despite some important news coming both from the UK and abroad, the Sterling managed to show completely no percentage change in its value on a five-day basis. Among currency pairs, GBP surged against the Euro and US Dollar amid weaker GDP reports from the Euro zone and speculations that the Fed will not hike interest rates in September due to recent turmoil with Chinese Yuan. On the other hand, GBP/CHF and GBP/CHF had an opposite situation, as they dropped the most by 0.57% and 0.82%, respectively.
Elevated volatility of the British currency was hovering around the median readings of several preceding weeks, as it stood at 31% versus 29% for the market during a five-working-day period from August 12 until August 18. These numbers were also reflected in the mean volatility index, which reached only 0.84 points. There were two major spikes in turbulence registered throughout the week, and one of them has been created solely by the Sterling, which posted considerable reaction after the CPI data from the UK. Other currency that was affecting volatility of the Pound was the Canadian Dollar, as GBP/CAD was turbulent in 36% of all time.
Significance of the UK Pound, which is calculated as an average correlation between different crosses of this currency, was rising every day during the reported period, only except Friday when we have observed some weakness of the composite. In general, the mean correlation coefficient for the period ended Tuesday of this week stood at 0.39 points, slightly below the average historical level for the Sterling currency of 0.41. Despite that, the gauge managed to overcome both six-month and annual means of 0.38 points, but lacked impetus to reach this month’s average figure of 0.43. At the same time, correlations were strong enough to keep distributions with rather short tails.
The past period was less about trends and more about sharp changes, with Wednesday being the apex of the market activity. Some of the effect came from the Fed’s July meeting minutes, as the pre-release risk aversion sent the franc into a rally and caused the USD Index to go into the week’s sharpest dip, deepened later by the dovish mood of the document. Meantime, the CAD Index lost 0.7 points on falling oil prices, while the previous period’s leaders, the euro’s and the krona’s gauges, turned to recover from a downslide that started off on Friday and got them to an over 1% loss by Wednesday noon. On Thursday, the franc’s measure extended its gains after the Swiss trade surplus was reported wider than expected, while its Swedish counterpart tumbled, with the moves securing the two European currencies as the period’s best and worst performers, respectively.
After the relatively turbulent previous trading week the observed period turned out to be extremely calm, with the Market Volatility Index posting the high of 1.53 and only 15% portion of elevated volatility. The Euro’s measure, in turn, became the most volatile currency in terms of elevated volatility portion, but stood behind several of its peers in relation to levels of turbulence. The most notable volatility spikes on the market were associated with greater-than-expected UK annual CPI and mixed-toned FOMC minutes, which managed the indexes of the domestic currencies to exceed the 2.0 level. The latter also provoked the greatest peak of the Euro’s composite gauge, and more than 3.0 points spike of its EUR/USD component.
The Euros significance strengthened notably in the past week, and the average values of the aggregate and most of EUR/USD components increased compared with the previous period’s readings. After two weeks of weakening, the components with the Pacific currencies showed the largest increase, gaining 0.2 and 0.33 points and exceeding their half-yearly values. Meanwhile, the period was less successful for the EUR/USD bond with EUR/GBP and EUR/SEK, which lost 0.07 and 0.1 points. Nonetheless, the pound’s component stayed above the monthly average, whereas the krona’s one lost some points compared with the long-term values.
No index posted a neutral weekly change in this period, with the values ranging from -3% for the Aussie’s gauge to +2.5% for the franc’s measure. The main developments took place in the second part of the period, and the earliest reaction came from the CHF Index, whose stagnation turned into an uptrend amid the pre-FOMC risk aversion. It was later fuelled by wider-than-expected Swiss trade surplus, leading the index to the best performer’s position. The AUD Index, in turn, was pushed down by ore prices and weak Chinese fundamentals. Another commodity currency, the Loonie, was hit by oil prices, and its index suffered two major slides before posting the second-biggest decline of the period.
The situation with the Chinese yuan devaluation has knocked the market off balance in the previous week, but as the first shock passed the indexes returned to tranquility against the background of their historical level. Thus the portions of the elevated volatility of the market and the Greenback have shed 11% and 18%, respectively. Nevertheless, despite the fact that the US dollar became one of the most stable currencies in the past week, the USD Index posted the second highest spike of the volatility (2.28) among its peer currencies.
The Greenback’s significance measure kept closer to its lower historical values throughout the past week, largely affected by declines in USD/GBP and USD/CAD components, which reacted sharply to the movements of the dollar’s peer currencies, going as far as to introduce some negativity into the main correlations. Most of the other components displayed no abnormal behavior, but still lost around 0.2 points from previous week’s means. Meanwhile, the bond between USD/EUR and USD/JPY remained unchanged and continued to hold on high levels, keeping its average 0.2 points above the long-term values.
There were two distinct groups of currencies, which were moving in different directions during the observed period ended August 25. The period included a so-called “Black Monday”, when the equity markets crashed worldwide amid fears the Chinese economy is slowing down. Moreover, additional important factor was oil, which dropped below $38 per barrel for the first time since 2009. Therefore, market participants were selling off three major commodity currencies including the Loonie, Aussie and Kiwi. On the other hand, along with the Swiss Franc and Japanese Yen, the Euro acted as a safe-haven currency to show a weekly rise of 3.93%.
Monday of this week was the key day for volatility, which surged up to its one of the highest levels in since the financial crisis. Along with currency trading, volatility has been absolutely extreme in both equity and commodity markets. The commodity-linked Canadian Dollar must have had a very substantial reaction to all events that happened during the massive sell-off across the board. Turbulence from Monday and Tuesday provided the Loonie with a 68% elevated volatility reading, which in turn has just barely exceeded the pan-market gauge of 66%. Meanwhile, the most volatile currency pair was CAD/CHF, as markets were increasingly acquiring the safe-haven Franc.
Massive fluctuations of the market and CAD in particular, which have already been discussed earlier, can be largely reflected in the significance of the Canadian Dollar. This currency has historically registered positive correlations between different crosses, and this fact was suitable for the first three days of the reported period. The composite was mainly moving above the historical mean, while only on rare occasions it was forced to fall below that mark of 0.42 points. However, after AUD and NZD joined the global sell-off on Monday, the state of affairs was immediately changed against the Canadian Dollar.
China’s crisis continued to be the main driver of the market in the past week. Monday’s fall of the US and European stocks, called new “Black Monday” by the media, led to the strengthening of the safe-haven currencies. Thus, the yen has soared rapidly and, despite the disappointing inflationary data released on Thursday, became the undisputed leader of the period. Meanwhile, things took a different turn for the Pacific currencies, the Loonie, and the pound, and their indexes spent the whole period below the baseline. The commodity currencies took a turn to recovery later in the period, as the oil prices started to edge up, but still failed to get out of the negative area.
China’s “Black Monday” tore through the previous week’s tranquility, setting off the wave of turmoil that held the indexes above the 1-point level all through the past four trading days. Shaken by rallies and retreats, the yen became the most turbulent major with 96% of elevated volatility and 2.1 index average. Close behind was the tumbling Aussie that posted readings of 94% and 1.8. On the market in general, the common peak of volatility was reached after the New York session opened on Monday, when the Euro and the Yen spiked, while the dollar and the commodity currencies tumbled. The yen’s index posted the high of 9.1 points, the Kiwi’s — 6.6, and the Loonie’s — 6.3.
While the Euro’s composite correlation index was little affected by the past period’s turmoil, its EUR/USD components suffered a great deal of changes. The most dramatic shift happened in the EUR/USD-EUR/JPY bond, whose distribution slid to the far lower tail of the monthly violin and mean value fell from 0.87 to 0.18. Most of the other EUR/USD components, on the other hand, showed a notable strengthening, with the greatest changes reported by the commodity currencies. Thus, the average correlation with EUR/CAD gained 0.24 points, with EUR/AUD — 0.25, and with EUR/NZD — 0.31.
The past week began with the wild swings for almost all observed currencies. The dramatic fall of the US and European stocks on Monday led to the weakening of the commodity currencies. Meanwhile, the safe-heaven currencies have jumped to the maximum values of the period. However the things took different turned on Thursday, when the oil prices started to growth. Thus the Loonie’s index managed to overcome the baseline and finish the period with the third best result. The Euro and the franc, in turn, have lost the leader position and fell to the negative area. Nonetheless the yen still stayed the best performer of the period, gaining more then 1.5%.
The trading week was extremely volatile for the currency market, especially the first half of it, when volatility of all the observed currencies stayed above the average historical turbulence level. The events on “Black Monday” caused a great spike of market activity. All the volatility indexes reached their maximums at the moment of US stock exchange opening. The yen as the main safe-haven currency reacted to the disturbing stock market conditions the most strikingly and its volatility measure exceeded the 8.5 mark, but the USD/JPY index reached the 14 points level. The Greenback and the European currencies excepting the Euro turned out to be the most tranquil ones with the peaks about 4.5 points.
The past week was marked by the notable weakening of the bonds between commodity currencies and safe-haven currencies, caused by the collapse of the stock market, which already is called new “Black Monday”. Thus USD/EUR correlations with USD/AUD, USD/CAD and USD/NZD turned negative. Even calming of the market conditions at the end of the period could not save the situation, and averages of these components lost about 0.5 points compared with the long-term values. As a result, the average value of the composite has been cut in half compared to the monthly value.
Even though the Japanese currency managed to show only a marginal 0.09% advance in value during the previous five-day trading period ended September 1, there were interesting developments to observe during that time. Mentioning other currencies, the Canadian Dollar surged the most 2.35%, while being influenced by recovering oil prices. From Thursday until Monday this commodity climbed 27%, the biggest streak of gains in several years. However, such commodity-linked currencies as the Aussie and Kiwi failed to keep momentum, as Tuesday oil’s bounce back pushed their indices below zero by the end of the period.
Volatility of both the market and the Yen, in particular, was quite in high in the very beginning of the observed period, while it lost steam by the last day of August and inched back higher on the first day of autumn. All in all, market turbulence followed global events from the stock market and oil prices, which used to drive the foreign exchange market last week as well. Therefore, elevated volatility posted a high 47% reading for the market and the 44% level for the Yen. Three components crossed the 50% threshold including GBP/JPY, SEK/JPY and CAD/JPY at 55%, 53% and 52%, respectively. Meanwhile, the Yen’s mean volatility fell just one basis point short of 1.00.
Close attention paid to the Japanese Yen provided this currency with uplifted significance readings last week. The mean correlation coefficient skyrocketed up to 0.57 points for the whole period compared with 0.37 points for the past six months and 0.44 points on an annual basis. It is worth mentioning the EUR/JPY & CHF/JPY component, which showed the correlation level of 0.63 points, as these currency pairs have mostly had a united movement due to the safe-haven status of Franc, Yen. The Euro was among them as well, acting as a bullish peer to the weakening US Dollar.
The past period was hugely successful for the Japanese yen, as it was once again pushed up by its safe haven status. Spending the first two days at the base level, the JPY Index surged to 101.5 at the beginning of Tuesday’s European trading session, a few hours after the weak Chinese factories data release. From there on, the index held above the baseline and maintained the leading position. The week was notably less fortunate for the Pacific currencies. Thus, during the first two days of the current trading week, the Kiwi’s and the Aussie’s gauges lost more than 2 points and became the main losers of the period. Among other currencies, the Euro suffered the sharpest downslide following President Draghi’s statement about the ECB’s decision to downgrade inflation and GDP forecasts, and shared the third worst performer’s position with the pound.
The anxiety on the market eased off in the past week, and the volatility measures returned to their typical levels. Thus, the portions of the elevated volatility for the market and the Euro stood at 28%, around 60% down from the previous week’s values and back to the “pre-China” readings. The peaks of the volatility were also low compared with the previous period, when the Euro’s gauge almost reached the 6-point level. This week, the Euro showed the second best result with only a 2.5 spike. The highest value, in turn, was posted by the Swedish krona, whose index jumped to 2.7 right after the Riksbank’s interest rate decision came out.
As the Chinese turmoil eased its hold on the currency market, correlations shifted closer to their usual states. Most notably, EUR/USD-EUR/JPY bond measure moved back to the positive territory and raised its average from 0.18 to 0.45. Some correction also came to the pair’s correlations with the commodity currencies, where the readings edged down from the remarkably strong values of the previous period. Meanwhile, The Asia-Pacific currencies and the Loonie stood out on the composite level as well, pushing their gauges to compete for leadership throughput the week and posting the greatest averages among their observed peers.
