15/01/2018

Major Events of the Week

Time (GMT) Flag Currency Event Currency Index Volatility Peak

MONDAY, JANUARY 8 SESSIONS

15:30 CAD BoC Business Outlook Survey +0.11 pp 0.04%

TUESDAY, JANUARY 9 SESSIONS

05:00 JPY Consumer Confidence -0.09 pp 0.04%

10:00 EUR Unemployment Rate -0.10 pp 0.04%

WEDNESDAY, JANUARY 10 SESSIONS

10:30 USD Report on China Reducing Purchases of US Treasuries -0.44 pp 0.08%

19:00 CAD Report on US Leaving NAFTA -0.69 pp 0.11%

THURSDAY, JANUARY 11 SESSIONS

00:30 AUD Retail Sales +0.44 pp 0.07%

12:30 EUR ECB Monetary Policy Meeting Accounts +0.61 pp 0.10%

13:30 CAD NHPI -0.22 pp 0.06%

13:30 USD PPI, Initial Jobless Claims -0.17 pp 0.05%

FRIDAY, JANUARY 12 SESSIONS

08:00 AUD Chinese M2 Money Supply, Chinese New Loans -0.16 pp 0.03%

13:30 USD CPI, Retail Sales +0.23 pp 0.05%

13:30 GBP Report on Spain and Denmark Agreement on Brexit Deal +0.55 pp 0.13%

Relative Currency Strength

The past period marked the first full-scale trading week

of the year, and the activity increased notably among

the observed indexes.

The week’s main gainer was the Yen’s gauge, which

showed the worst result in the previous period and now

posted its greatest weekly growth since mid-November.

The measure jumped above its peers on early Tuesday,

after it was reported that the BoJ reduced the long-term

government bond purchases that are part of the bank’s

quantitative and qualitative easing programme. The

news fueled expectations that the year might see a start

of the stimulus policy unwinding, and the JPY Index’s

rally stretched into late Wednesday, where it reached

its high of +2.00% against the background of the

Loonie’s tumble. Afterwards the momentum was lost,

and the gauge spent the rest of the week slowly losing

ground, with a notable dip taking place on Friday as the

European currencies went up.

A bunch of currencies finished the period at the +0.50%

mark, with the biggest growth of +0.54% posted by the

Euro’s gauge. The measure started the week sluggishly,

moving in a mild downtrend throughout Monday and

remaining flat near the -0.50% line until Thursday noon.

There was a slight pickup on Wednesday, but the real

breakthrough came after Thursday’s release of the ECB

December meeting minutes. The report pointed to

strengthening in the economy and hinted that the ECB

could soon start to prepare markets for the end of the

stimulus programme. The EUR Index enjoyed the week’s

days of the week, but started to decline on Wednesday, sliding to its

low of -0.74% by mid-Thursday. The situation changed on Friday,

when it first followed its European peers in their uplift, and then had a

breakthrough of its own after Bloomberg reported that Dutch and

Spanish finance ministers have agreed to pursue a soft Brexit deal.

The Pound’s measure enjoyed the week’s greatest 10-minute jump of

0.49 pp, breaking through the baseline, and continued to climb up till

the end of the day despite the subsequent denial of any special

agreements between the two countries voiced by the spokesman for

the Spanish ministry.

On the other side of the baseline, the Loonie’s gauge was in the lead,

effectively negating the previous period’s skyrocketing move. The

gauge was declining throughout the whole period, with the principal

shock coming on late Wednesday, when Reuters reported that two

Canadian government officials believed that Trump administration

would pull the US out of NAFTA. The CAD Index suffered the week’s

greatest 10-minute plunge of 0.33%, falling well below its peers and

reaching its week’s low of -1.67%. The gauge ultimately finished the

period only 0.22 pp above that value.

second-greatest 10-minute jump of 0.38 pp and saw the rally continue into Friday, where it got additional fuel from reports on preliminary agreement

being reached in Germany to negotiate a coalition government.

The NZD Index posted a slightly lesser 0.51% weekly gain, despite showing relatively strong performance throughout the week. The measure started off

with an uptrend and reached the +0.50% line on Tuesday. It swayed around that level until Thursday, where it started gaining speed at the end of the

Asian session and reached its week’s high of +1.31% by the end of the day. On Friday, however, the gauge behaved similarly to its Japanese peer and slid

down against the background of the Euro’s, the Franc’s, and the Pound’s growth.

The latter’s gauge was the final index to settle near the +0.50% level at the end of the period. The GBP Index swayed around the baseline for the first two

Relative Currency Strength

Currency Volatility

As was suggested by the currency indexes, the turbulence

on the market returned to the average level after the

tranquil holiday weeks. Interestingly, three out of the six

prominent volatility peaks of the week were reached on

the back of news reports rather than economic releases.

The smallest of these peaks stood at 0.080% and was

formed by the Greenback’s tumble in response to the

Bloomberg’s report that the Chinese officials reviewing the

country’s foreign-exchange holdings recommended either

slowing or halting its purchases of the US Treasuries. The

information was dismissed the next day by the State

Administration of Foreign Exchange, but that did not

evoke an equally strong response on the market. A notably

stronger-than-average rise of volatility was observed in

NZD/USD, whose measure stood at 0.109%, while a low

value of 0.054% was posted by the pair with Loonie, which

followed its US peer in the decline.

The next peak was related to the NAFTA headlines, which

caused the Loonie to tumble and put its average volatility

at 0.112%. The sharpest reactions came from CAD/JPY and

CAD/CHF, whose turbulence measures climbed to 0.129%

and 0.118%, respectively.

Finally, the week’s largest volatility spike of 0.130% was

attributable to the Pound’s surge against the background

of the news on the Brexit deal. A remarkably strong

reaction was again displayed by the pair with the Kiwi,

with GBP/NZD volatility reaching 0.158%. The smallest

volatility of 0.118% was posted by GBP/CHF, and all other

pairs raised their readings above the 0.120% mark.

Currency Pair Correlations

The deviations between the weekly and the monthly

correlations were not as pronounced as in the previous

period, but still scored closer to the strong side, with seven

out of ten displayed combinations posting at least 0.10

points shifts between short- and long-term medians.

Most of the prominent changes were related to the bonds

between the European currencies, the Yen, and the

Greenback. Thus the weekly correlations between EUR/JPY

and EUR/USD shifted their distribution away from

abnormally high monthly levels and in par with the half-

yearly readings, posting a 0.167 pp drop in the median

value.

Weakening was also observed in the bond between the

Pound’s pairs, though the shifts of the GBP/JPY

correlations with GBP/USD and GBP/CHF were directed

away from the long-terms levels.

Strengthening, on the hand, was reported by the

correlations between EUR/JPY and GBP/JPY, EUR/USD and

USD/CHF, and EUR/USD and GBP/USD. All these

combinations saw their correlation distributions shift

towards the stronger long-term levels.

Meanwhile, some tightening was observed in the bonds

between AUD/USD and EUR/USD, and AUD/CAD and AUD/

USD, while the correlations between EUR/CAD and USD/

CAD shifted their weekly median below the long-term

values.

Explanations

Violin Plot

Violin Plot combines several rotated Kernel Density

Plots for ease of comparison

Relative Density

Ob

serv

ed V

alu

es

Density Plots:

26-week

4-week

1-week

Medians:

1-week

4-week

26-week

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