The past trading week was smooth for the dollar, whose index remained on a restrained uptrend and shared the second best performer’s title with its Swedish peer. Meanwhile, the greatest growth was again posted by the yen’s gauge, which got a new wave of support from the risk aversion moods and added another 3% to the previous week’s 1.6% gain, lifting its yearly change firmly into the positive area. On the other side of the baseline, the leading positions were held by the Aussie’s and the Kiwi’s gauges. The AUD and the NZD Indexes went into their final dive on Friday, erasing the gains they got out of the ECB’s press conference and the Euro’s tumble the day before, and finished the period 1.7 points below their closest peer.
After the extremely volatile “Black Monday” week, the market calmed down, and the portions of elevated volatility returned to the “pre-China” levels of around 20%. The most volatile currencies were the Canadian dollar and the Swedish krona, both reporting 32% of overturbulence. The krona also suffered the period’s highest peak of volatility, when the Riksbank’s interest rate decision managed the SEK index to jump to the 2.65 mark. The overall height of the volatility spikes, however, was much lower than the previous week’s values, as most of the indexes failed to reach the 2-point level.
For the second week in a row now, the dollar’s significance measure held the weakest position among the observed gauges. The oil market conditions coupled with the effect of previous week’s stock market collapse made the commodity currencies and the safe-haven yen the market drivers, and USD/EUR correlations with USD/AUD, USD/CAD and USD/NZD were significantly weaker than usual and even fell into the negative territory. As a result, averages of these components lost about 0.5 points compared with the long-term values, while the Greenback’s composite yielded 0.3 points.
Summary
China’s “Black Monday” crash on August 24 not only triggered panic among investors all around the world, but also significantly undermined professors’ sentiment as all indexes plunged sharply. A near 9% decline in the Shanghai Composite index, the biggest one-day decrease since 2007, reverberated around global markets, sending other stock exchanges from Sydney to Wall Street tumbling. As worries go well beyond China’s immature stock market, signs are mounting that the world’s second largest economy is slowing at an even faster pace than Beijing estimated, fuelling fears the global economy heads for a renewed crisis. After growing 7.4% last year, there are doubts that the Chinese economy can reach this year’s lower target of 7%. Despite a string of interventions by Beijing, including an unexpected devaluation of the Yuan this month, the world’s growth engine appears to be spluttering.
Now everyone is left with the question “What does the turmoil in China mean for the rest of the world? To what extent the recent adverse developments in China will impact other economies? And will central banks adjust their monetary policy to cushion economies and ensure sustainable growth?”
Meanwhile, professors who took part in August Dukascopy Sentiment Index poll appeared to be increasingly concerned about the world’s leading economies, as their both short and long term economic outlook darkened.
Last week the safe-haven currencies took over the role of being the major under-performers on the foreign exchange market. Among them, the Swiss Franc and the Euro retreated the most by 2.06% and 0.83%, respectively, while the Yen managed to hold above the base line and register a marginal 0.1% increase in value. On the other hand, the commodity-linked currencies resumed growing amid some stabilisation of oil prices. The Kiwi has in turn posted the highest weekly gain of 0.77%, while the Aussie and Loonie followed with a rise of 0.32% and 0.37%, respectively.
Volatility of both the market and the Australian Dollar were decreasing every day during the reported period, which resulted in low aggregate turbulence indicators. Elevated volatility of the Aussie was as low as 22%; however, it outpaced the market by seven percentage points amid some local spikes in the Volatility Index on Wednesday and Thursday, when important Australian fundamentals were released. Meanwhile, the most volatile currency was GBP/AUD, with its elevated reading being pushed up to 35%, amid presence of several statistical releases from Britain, which were driving the markets.
Significance the Australian Dollar, calculated as an average correlation between different crosses of this currency, held at quite high levels during the previous week, continuing the trend of a number of preceding periods. The South Pacific currency is historically registering strong correlations, due to its commodity-linked status and dependence on oil prices, which have been predominantly driving all currency pairs of the Australian Dollar during recent times. This development is resulting in shorter tails for the majority of the components except the Loonie and the Kiwi.
The past week marked a turning point for almost all observed currencies, as the leaders of a few previous weeks became the losers, whereas the underdogs pulled ahead. After the ECB fuelled fall last Thursday, the Euro turned to recovery, and its index became the best performer of the period, gaining 1.25%. Meanwhile, the JPY Index, which was the leader in the two previous periods, dropped with the disappointing Japanese Eco watchers survey released on Tuesday. From there on the yen’s gauge continued to decrease and finished the period with the second greatest loss. The Aussie, in turn, broke the series of unlucky weeks, and gained 0.79%. The Kiwi followed its Australian counterpart till Wednesday evening, when it was pushed down by the cut of the RBNZ interest rate, causing the NZD Index to post the worst result among its peers.
Market activity lost more steam from the overturbulent end of August, with the observed currencies’ aggregate elevated volatility measure dropping below 20% after the previous period’s fall to 28%. The Euro became the calmest major, while the highest overturbulence readings were posted by the Pacific currencies and the pound. The main headliner of the week was the Kiwi, whose volatility index spiked to the period’s absolute high of 4.8 after the announcement of another rate cut and the RBNZ dovish statement presented on Wednesday. The second-greatest peak stood at only 2.6 points, but was prompted by a similar event, as it was reached by the Loonie’s gauge in response to the BoC rate statement released earlier the same day.
The Euro’s correlation levels remained largely unchanged from the previous period’s readings, with the aggregate values closer to the lower side of the long term distribution. Somewhat notable changes happened in EUR/USD bonds with the EUR/CHF and EUR/AUD. The former posted a lot of lower-than-usual values, subsequently reducing its average from 0.5 to 0.3. The latter, in turn, picked up, lifting its average above the 0.6 mark and further away from the long term readings. Meanwhile, the EUR/JPY component’s distribution shifted closer to its usual form, abandoning the negative values and grouping the readings around the strong average of 0.5.
Tables have turned for the winners and the losers of the previous weeks, and the main trends that reigned over the market since the Chinese “Black Monday” switched their directions. The most dramatic change happened to the yen, as its index - the best performer of the two previous weeks, - slipped on Tuesday after the release of disappointing Japanese Eco Watchers survey, and continued to decline till the end of the period. The Pacific currencies, in turn, showed the trend of a rapid growth, with the Aussie becoming the leader of the observed period. The Kiwi was following its Australian counterpart and even outpaced it on Wednesday, but fell sharply after the RBNZ announced a cut of the interest rate, and finished the period on the baseline.
Volatility continued to pull back from the extreme levels it surged to during August 24-28, cutting both the overturbulence portions and average indexes’ values. The Greenback was in line with the market in this respect, with only NZD/USD and GBP/USD breaking the pattern and showing increases in the readings. Additionally, NZD/USD posted the highest volatility index among the dollar’s pairs, soaring over the five point mark as the Kiwi plunged on Wednesday. Meanwhile, EUR/USD and USD/JPY were the calmest major pairs and were overturbulent for less than 10% of time.
The dollar’s correlation composite remained the weakest among the observed gauges for the third week in a row, with more and more whites creeping into the main components. The Greenback’s significance measure took a hit in the Chinese “Black Monday” week and was subdued since then, going as far as letting its 20-day average slip below the significance threshold in the past period. The chief driving force behind the decline were the commodity currencies, which brought a lot of negative values into the usually green dollar’s correlations. Thus, USD/EUR average bond measures with USD/AUD, USD/CAD, and USD/NZD fell to zero for both 5 and 20-day horizons after close to 0.5 in the “pre-China” weeks.
Australian Dollar was the best performer of the researched period. This currency was accompanied by three other components that managed to rally since Wednesday of the previous week until Tuesday of this week. By gaining 0.52%, the Euro has almost erased its losses on the annual basis, where a decrease amounts to just 0.82% at the moment. In the meantime, the Swiss Franc is up by 10% on the basis of the last 250 trading days, which is below the 14.66% yearly surge for the Greenback, even despite a CHF rally we observed in January, when the SNB abandoned the Franc’s peg to the Euro.
This week’s market movements were quiet, despite presence of important fundamentals throughout the whole period. This fact was clearly reflected in the volatility readings for both the market and Australian Dollar in particular. Only two first days of the period registered some notable changes, while the rest of the period was mainly spent below the historical average volatility level. Therefore, AUD elevated volatility reached just 16% this time, down from 22% last week. On the other hand, mean market elevated turbulence of 17% has marginally outperformed the preceding period’s 15% reading. As a result, the week’s average volatility index stood at just 0.74 points for both market and AUD.
Unsurprisingly for the Australian currency, its correlations were fairly high for the most part of the reported time period. The composite correlation index, which is calculated as an average correlation between different currency pairs of the Aussie, has stayed firmly above the historical average level of 0.61 points since Thursday of last week. Therefore, the mean correlation coefficient has also increased up to 0.63 points, outpacing both 20 and 130/250-day averages of 0.61 and 0.53 points, correspondingly. Only one component, which included the New Zealand Dollar, was touching the correlation below zero, leading to the long tail of the distribution between AUD/EUR and AUD/NZD.
The past period was all about sharp moves, as most of the indexes changed their positions abruptly and otherwise wavered around the reached levels. The main shifts took place on Thursday, when all eyes were on the Fed and its interest rate decision. The USD Index started to lose points a couple of hours before the announcement, and, after the long-awaited hike was pushed further towards the end of the year, went into a dive to the period’s absolute low of 98.5. The Pacific indexes produced the sharpest surges, but also went into the deepest dives after the press conference, yielding more than they managed to gain. Meanwhile, the krona’s gauge, which showed the week’s broadest surge as it burst above its peers with the improved GDP and unemployment data released on Friday, was gaining ground all throughout the blue area, surpassing its Australian counterpart and posting the period’s greatest gain. The only index to show virtually no reaction to Thursday’s events was the pound’s measure, which made its big move amid solid jobs report on Wednesday and kept close to the baseline during the last day of the period.
As anticipation of the FOMC meeting grew heavier, activity on the market continued to decline. The portions of elevated volatility lost some more points from the previous period’s already subdued values, with the aggregate reading standing at 6%, and the separate currencies’ measures varying from 3% to 11%. Amid the overall tranquility, even the period’s main event failed to provoke extraordinary splashes of volatility. Here, the highest peak was taken by the Aussie’s measure, but even that reached only as high as 2.3 points.
Despite the abnormal tranquility on the market and the main focus of the period being aimed at the US, the Euro’s correlation composite remained firmly within its usual boundaries. Notably, some shifts did happen in the EUR/USD components. Thus, the pair’s bond with EUR/JPY lowered its average to 0.49 from the previous week’s closer-to-long-term 0.68, while the mean correlation with EUR/CHF, on the contrary, moved closer to usual by strengthening from 0.14 to 0.32. Nevertheless, the EUR/USD-EUR/CHF component still brought a substantial amount of red into the aggregate, with its values holding heavily on the downside of the 20-day distribution.
As the market awaited word from the Fed, the currency indexes’ movements were reserved, with most gauges staying firmly within -/+1% interval. The only exceptions were the yen’s, the Aussie’s, and the Greenback’s measures, though even those fell out of the common bounds only briefly. The JPY Index made its major move on Tuesday morning, as the BoJ decided not to introduce new easing measures into its monetary policy. The Aussie’s gauge, in turn, reached over the 101-point line at the peak of its September 15-16 rally, backed by weaker dollar and higher commodity process, and then spiked above it amid the Fed’s conference, showing the strongest reaction to the event.
Even against the background of several tranquil weeks, volatility on the market remained extremely subdued, with the aggregate measure holding below the two-week mean for almost 90% of time. The week’s most turbulent news — the Fed’s rate decision and the FOMC statement, — managed to lift only three volatility indexes above the 2-point mark. Thus, the Aussie’s gauge reached the value of 2.54, the Kiwi’s — 2.48, and the dollar’s — 2.34. Among the period’s other turbulent events were the New Zealand disappointing GDP and strong UK labor data, both of which pushed the national currencies’ index above 1.5 points.
After spending three weeks on extremely low levels, the Greenback’s significance measure began to recover, and its average gained 0.14 points over the past period. Averages of USD/EUR components also rose, adding 0.02-0.31 points from the previous week’s values. The most notable increases were observed in the components with the Pacific currencies, where the China’s crisis caused the sharp weakening in late August, and averages fell into the negative area. During the past week, however, USD/EUR correlations with USD/AUD and USD/NZD strengthened, and their means gained 0.26 and 0.31 points, respectively.
Somewhat mixed performance was showed by the Canadian currency last week. Nevertheless, after trading in a volatile environment around the base line throughout the whole time period, it managed to end the week with a gain of 0.34%. Among other reported currencies, only the Euro’s change exceeded 1% level for the five-day period ended Tuesday of this week as it dropped by 1.05% amid expectations the ECB will be forced to expand the QE programme, if inflation fails to rebound. Safe-haven currencies continued to outperform as risk-averse sentiment returned back to markets. Thus, the Yen and Franc were up 0.69% and 0.41%, respectively.
Rich with news releases, the first three days of the period were rather turbulent for the market. In spite of that, the majority of currency pairs used to have a low percent of elevated volatility. Indeed, only USD/CAD Volatility Index spent 24% of the time above the historical level, the longest among all crosses. On the contrary, lack of statistics from Australia sent AUD/CAD’s reading to just 10%. All in all, the CAD elevated volatility stood at just 14%, below the market’s 18% and significantly down from 60%+ showed by this currency exactly a month before.
The past week could not be divided into any distinct parts with weak and strong correlations between the Loonie’s crosses. The average correlation, which measures currency’s strength, was fluctuating around its historical level during the whole period from Wednesday till Tuesday. However, such instability can be easily explained by a high number of different fundamental releases in course of the reported period. The most dramatic change was posted on Thursday in time of the Fed decision. Then, the US Dollar fell substantially versus the Aussie and Kiwi, thus pushing their correlations against the market and eventually creating longer tails for these components.
After posting the greatest gain over the previous period, the SEK Index went into a downslide and ultimately became the worst performer with a 1.5% weekly loss. Meanwhile, the dollar’s gauge, which reacted dramatically to the Fed’s interest rate decision, was recovering during the period and ended up outpacing all its peers. The AUD Index, in turn, experienced the most conspicuous and sharp movements. Starting from Tuesday, it was weakening following a stepwise pattern with drops in the beginning of European sessions on Tuesday and Friday and clear negative reaction to the Caixin manufacturing PMI, which came out at the lowest since March 2009 level. However, a recovery seen in commodities drove all associated currencies up on Thursday, and the AUD Index finished the period at the 99.0 points level instead of 98.0 mark it fell to earlier that day.
After two periods of decreasing turbulence, volatility finally picked up, and the observed measures came to exceed their past two-week averages in 20-30% of time. Nevertheless, overall levels of indexes remained subdued, with the mean values standing at around 0.86 and the period’s high barely reaching above 2.00 points. The Euro was marginally more turbulent than the market and posted the third-highest portion of elevated volatility, surpassed by its European peers — the franc’s and the pound’s gauges. The Kiwi’s measure was among the calmest throughout the week, but reached the period’s absolute high, when the currency zigzagged on late Thursday after enjoying a rally fueled by Fonterra raising its forecast payout to farmers.
The Euro’s significance measure continued the tendency of the previous week and generally moved downwards. However, due to the brief strengthening of the measure in the middle of the period, the average of the aggregate was virtually equal to the previous value, losing only 0.01 point. The same could be said for the averages of the EUR/USD components as they lost 0.03-0.09 points. The only strengthening of the bond was observed in correlations between EUR/USD and EUR/CHF, which gained 0.11 points compared to the previous values.
The week was very successful for the Greenback as its index steadily rose during the whole period and finished it in the best performer’s role, gaining from 0.33% to 2.45% against its counterparts. The Aussie, in turn, negatively reacted to another disappointing economic release of Chinese manufacturing PMI and it was the most conspicuous reaction to the economic release this week. By Thursday morning its index slid to 97.5 level, however, the commodity market recovery gave the associated currencies positive impulse and the AUD measure finished the week 1.5 points below the baseline.
After several tranquil weeks, the Greenback’s volatility picked up, and the index spent 30% of the period above its two-week average. However, the increase was mostly fueled by the dollar’s pairs with the European currencies. Thus, the portions of the elevated volatility of GBP/USD and EUR/USD were close to 50%, while the measures of USD/CHF and USD/SEK stood at around 40%. Some of the other components, in turn, were calmer compared with values of the previous period. As for the height of the volatility peaks, both the Greenback’s and the market’s gauges failed to reach the 2-point level, and the values of the components were notably lower than the previous readings.
The dollar’s correlation composite seemed to have settled down around 0.3 points, sliding from the more substantial long-term levels and remaining subdued since late August. With that the dollar’s gauge once again kept below its peers, signaling the weakest bonds between the associated currency pairs. Meanwhile, USD/EUR components that lost their ground with introduction of negative values also continued to hover below their past readings, with the tendency most pronounced in correlations with the commodity currencies’ pairs — USD/AUD, USD/CAD, and USD/NZD.
After losing value every single day except Monday during the research time period, the British Pound became the worst performing currency in the market last week. It was also joined by the Australian and Canadian dollars, which lost 0.96% and 1.29%, respectively due to pressure coming from oil prices. Moreover, all mentioned currencies were struggling amid US Dollar’s relative strength caused by comments from different members of the FOMC, including Chair Janet Yellen, concerning the upcoming rate increase. They confirmed that it is likely to take place in 2015. The Greenback, however, finished the period with a slight 0.11% loss.
Even though the period was unusually quiet in terms of inland fundamental releases, the Pound managed to register well-uplifted volatility in course of the whole time period. Regional spikes in the Volatility Index were taking place every day, but they were predominantly caused by news coming from different countries around the world. Therefore, the elevated volatility stood at healthy level of 45%, down slightly from average of 47% showed by the market. The threshold of 50% was reached by the EUR/GBP cross (53%) due to high fluctuations of the common currency and GBP/CHF (50%). GBP/CAD was in turn the most silent currency pair during the period as it was increasingly turbulent in just 24% of all time.
Correlations between different crosses of the UK currency held at fairly high levels in course of the reported trading period, while the composite hovered within normal range of the last few weeks. Looking at the mean correlation coefficient (0.36 points) for the five-day period from Wednesday of last week till Tuesday of this week, it was marginally higher than 0.33 points registered during the past month. Moreover, it has precisely matched the annual reading of 0.36. Components, which posted longer tails, included GBP/EUR & GBP/AUD and GBP/EUR & GBP/NZD as their average correlations even failed to exceed 0.2 points.
Summary
[ul]
[li]China’s “Black Monday” crash on August 24 triggered a tornado which swept through the global economies and equity markets, sowing panic among investors, policy makers and ordinary people, but, as it faded, economic sentiment seemed to restore. September release of Dukascopy Bank Sentiment index revealed that all indices which show academia experts evaluation of regions’ short and long-term economic prospects rebounded after precipitous declines in the preceding month.
[/li][li]Nevertheless, fears continued to engross economists’ and analysts’ minds, particularly after central bankers around the world voiced concerns over the Chinese economy and the spill-over effect it might have on other economies.
[/li][li]North America enjoyed the biggest bounce-back of its sentiment indices in September, compared to other regions. The rebound came even despite the fact that the Fed decided to delay the long-anticipated interest rate hike, suggesting the US economy was not robust enough to weather recent developments.
[/li][li]Europe’s and Asia-Pacific’s sentiment indices recovered as well, but remained at historically low levels. The regions’ short-term gauges remained in negative territory in September.
[/li][/ul]
The past period was all about a standoff between the safe-haven and the commodity currencies, with the inflows and outflows of investors creating a rollercoaster for the indexes. The most sensitive one was the Kiwi’s gauge that suffered the broadest zigzags, but ultimately posted the highest weekly growth. Its Australian counterpart followed largely the same pattern, but lacked the initial momentum the Kiwi’s gauge carried over from the previous period, and thus held on lower levels, only managing to edge into the appreciation area by the end of the week. The Loonie’s index, in turn, had a smoother trajectory, sliding to the period’s low by late Tuesday and recovering to post the second-highest gain.
Continuing the tendency of the previous period’s last trading days, the Euro was rather turbulent in the beginning of the observed week. Nevertheless, overall level of elevated volatility remained roughly the same. The most notable changes occurred in the krona and were caused by the sharp drop of the Swedish trade balance and retail sales. Thus, it became the most turbulent currency in terms of both elevated volatility portion and the peaks significance.
On average, the Euro’s correlation composite remained mostly unchanged from the previous period, thought the distributions of the aggregate and the components became less grouped around the mean. Interestingly, EUR/USD correlations with the commodity currencies’ pairs shifted up, even though the currency indexes showed that the Euro’s and its peers’ movements were largely opposite. This might indicate that, despite showing different behavior across the board, the currencies have somewhat similar stance against the dollar.
After a confident rise in the previous week, the Greenback began to lose ground and became the second worst performer of the period, overtaking only the pound. Among the losers were also the single currency and the yen, whose indexes lost 0.47% and 0.29%, respectively. The safe-haven currencies were oscillating throughout the period and finished the week in the negative area. The counterweights to them were the commodity currencies, the Kiwi and the Loonie, whose gauges became much more successful and finished the week with 1.08% and 0.88% gain, respectively. The fluctuations of the commodity prices were driving the Aussie, too, but after the Friday’s drop the AUD Index managed to recover only to 0.01 mark.
The market’s volatility continued to pick up, with most of the observed overturbulence portions climbing above 30% and average index values scoring around 0.90. The most turbulent currency was the Swedish krona, whose gauge spent 42% of time above the two-week average and posted the mean value of 0.98. Behind it were the Euro and the franc, both with readings of 35% and 0.93. Meanwhile, the dollar stood among moderately turbulent currencies, but its index reached the period’s highest peak of 4.51 with the currencies sharp reaction to Friday’s labor data. The move was also passed to the Greenback’s peers, making all other indexes jump to their week’s highs.
The past trading week was another period of weak correlations between the USD pairs, reflected clearly in low composite’s values. The distributions of all the components with USD/EUR were notably skewed towards zero and the negative values. Moreover, considering the Monday to Thursday period, the average of the composite did not reach even the 0.2 level, while the Kiwi’s and the Aussie’s gauges were varying around the 0.72 and 0.58 levels, respectively, having the strongest bonds between their currency pairs.
Canadian currency was the clear best performer during the five-day period ended October 6. This currency traded firmly in green every single day from Wednesday of the previous week until Tuesday of this week. Only the New Zealand Dollar attempted to challenge the leadership status of the Loonie, when the NZD Index neared the CAD Index on the first day of October. However, the situation remained intact and the week was ended with an overall gain of around 2%. The Kiwi and Aussie followed with an advance of 1.6% and 0.94%, respectively. On the green side, only the Swedish Krona managed to gain some additional value (0.74%), while others declined.
A steady bullish trajectory of the Canadian Dollar resulted in quite low volatility readings for this currency. There were a number of important fundamental reports published throughout the period, and all of them helped the CAD Volatility Index to come back above the historical average for some periods of time. Nonetheless, the elevated volatility stood at just 28%, meaning that the Canadian Dollar was turbulent in just over a quarter of all time last week. AUD/CAD was the most volatile cross as both commodity currencies used to have stronger reaction to important market news.
Significance of the Canadian currency, calculated as an average correlation between its different crosses, showed unusual stability during the vast part of the reported period. Only Wednesday was marked with some volatility of the composite, while during other days it hovered in a narrow range between the historical average of 0.42 and the 0.55 area. Despite that, some components were showing relatively low correlations, especially those including the Euro on the one side and commodity currencies on the other side. Therefore, CAD/EUR & CAD/AUD and CAD/EUR & CAD/NZD used to have longer tails as their mean correlations were as low as 0.1 and 0.2 points, respectively.
As Friday’s US data hit the market, the wavering of the currency indexes was replaced by moderate trends, clearly dividing the gauges into losers and winners. The latter group was comprised of the commodity currencies’ indexes, which tumbled amid post-release risk-aversion, but jumped into recovery almost immediately. The most successful ones were the Pacific indexes, as the Kiwi’s gauge was boosted by the GDT auction, and the Aussie’s measure spurted away from the baseline with the confident RBA statement. Meanwhile, the depreciation area accommodated most of the indexes that peaked on the US weak release, as they erased their gains by late Friday and remained below the baseline till the end of the period. The greatest weekly loss was posted by the JPY Index, which moved side by side with the dollar’s gauge.
The period was relatively calm, as volatility of both the market and the single currency did not notably exceed the average historical level. The only exception was Friday, when the US nonfarm payrolls undermined the domestic currency and strongly influenced its counterparts. As a result, the market volatility measure nearly reached the 3.0 level, and the EUR Volatility Index surged to the week’s high of 3.89 points. The Loonie, the krona, and the Euro became the most turbulent currencies with 29%-30% portions of elevated volatility. The former was one of the most news-driven currencies, as its activity spikes matched the moments of Canadian PMI and housing data releases.
The Euro‘s correlation levels remained mostly unchanged from the last few weeks. Nevertheless, the aggregate and the EUR/USD components continued the tendency of the previous period, and tails of most of the distributions became even heavier. The most notable changes took place in the EUR/CHF component. Compared with the previous week, the bond between EUR/USD and EUR/CHF weakened by 0.18 point. Thus the component has dropped almost by half compared with the monthly value. The strengthening, in turn, was observed in components containing EUR/JPY, EUR/GBP and EUR/AUD. The components gained only 0.03-0.09, but their averages exceeded the long-term values.
Weak confidence that the Fed will raise interest rates this year as well as the increase of some commodity prices were the main drivers of the past period. Thus the Greenback fell against almost all observed currencies for the second week in a row, causing its index to lose more than 1.7%. Meanwhile, the Pacific currencies showed impressive growth. The RBA interest rate decision has lived up to the expectations and pushed the Aussie up. Thus the AUD Index became the best performer of the period (+2.47%). Recovery in the milk prices, in turn, managed the Kiwi’s gauge to rise, and it lost only 0.32% to AUD.
Turbulence on the market started to fade again, with the aggregate portion of elevated volatility losing 10% from the previous readings. The dollar, whose currency index moved on a slow downtrend throughout the period, scored below the average with 18% overtubulence. Meanwhile, the yen spent even less time above the baseline – 14% of the period, with USD/JPY posting only 3%. The most turbulent currency was the Swedish krona with the 27% of elevated volatility. The height of the volatility peaks was also rather small, and after the previous week’s spike to 4.5 caused by the US payrolls data, the Greenback’s index failed to rise even to the 2-point level.
After spiking on disappointing labor data at the end of the previous period, the dollar’s correlation composite managed to hold above the feeble levels it was stuck on for several weeks, putting its average back over the significance threshold. Notable strengthening was also observed in the USD/EUR components, where almost all distributions thinned their lower tails and shifted up. The combinations with the commodity currencies’ pairs went through the greatest changes, cutting down on the negative values that lately reigned over the bonds, and lifting their averages from zero to weakly positive numbers.
The new week brought distortion into the previous period’s trends, turning some of the indexes around. The most dramatic change hit the Pacific gauges, which finished Friday way above their peers, but lost their footing in Monday afternoon, and tumbled throughout Tuesday after receiving a blow from the Chinese imports numbers. In the depreciation area, the previous week’s losers started to pick up, with the USD and the JPY indexes edging to the baseline, and the Euro’s and the franc’s measures managing to cross above it. The Loonie’s gauge, which seemed to be glued to the baseline in the previous week, broke loose and nearly posted an over 1% loss, but got a boost from oil prices and rebounded sharply in Tuesday afternoon.
The past period was weakly volatile, and a large portion of turbulence came from Tuesday’s movements. The day saw the period’s highest volatility spikes, caused by the inflation data coming from Sweden and the UK. As the Swedish CPI posted unexpectedly strong numbers and the UK figures disappointed markets, the krona surged and the pound tumbled, both pushing their volatility indexes above the 2.3 points mark. The only other splashes above the 2.0 points level took place on Thursday, when the Kiwi surged and the dollar zigzagged amid the Pacific currencies’ rally, lifting their volatility measures to the period’s highs. Meanwhile, the krona and the pound also proved to be the most volatile currencies in terms of overturbulence portion, as their gauges kept above their two-week averages for almost 30% of time.
The pound’s correlation composite held around its long-term average throughout the period, and was among the three weakest gauges along with the Euro’s and the dollar’s measures. Nevertheless, there were some deviations from the usual in the GBP/EUR components, where the pair’s average correlations with GBP/USD, GBP/JPY, and GBP/CHF stood well above their semi-annual and annual readings. The bonds with the Pacific crosses, in turn, were notably weakened, with a high portion of near-zero correlations compared to somewhat shortened tails.
The past period was a dynamic one for the observed currencies, packed with wide moves and direction changes. The broadest downslide was suffered by the Aussie’s gauge on Tuesday. Set off by the greater-than-expected decline in Chinese imports, it ate away almost 2 points of the index’s value within the day. Another impressive plunge happened to the SEK Index, which slipped on unemployment numbers on Thursday morning and lost 1.5 points by late afternoon. The GBP Index was one more gauge to go through a sharp fall, as it lost 0.2 points in half an hour on the UK CPI data released on Tuesday. Meanwhile, the longest rally was produced by the Kiwi’s gauge, which reached its low of 99.3 points on late Tuesday and then raced to peak above the 102 mark at the end of the period.
Despite great activity observed in the currency indexes, the past period was not particularly remarkable volatility-wise. Thus, the overturbulence portions stood close to 30% and most of the average indexes’ values were below 0.85 points. Nevertheless, there were four currencies that drove their volatility measures above the 2 points line. The first such spikes happened on Tuesday, when the pound and the krona reacted sharply to unexpected numbers in national CPI releases, pushing their indexes to 2.5 and 2.4 points, respectively. The other two peaks were reached on Thursday by the Aussie’s and the dollar’s gauges. The former rose to 2.2 points as the Australian dollar zigzagged on a mix of growing consumer inflation expectation and downbeat labor data, while the latter surged to 2.4 when the Greenback jumped with the CPI release.
During the first four days of the observed period the significance measure of the Euro followed a descending pattern, as there were no economic releases from the Euro zone that could notably influence the bonds between the single currency’s pairs. Thus, the distributions of the correlations between the most traded pair and its EUR counterparts were significantly skewed towards the zero level. However, the period was associated with several notable spikes of other currencies’ significance, which followed the news from different regions. Tuesday was one of the most conspicuous days in this regard. Greater-than-expected rise of Swedish CPI and unexpectedly negative UK inflation numbers pushed the significance of the domestic currencies up, and their composites exceeded the 0.7 points level.
