Dukascopy Market and Economic Research

Highlights of the latest Marker Research release on USD.

Full research available here.



USD index, as most of the other currency indices, was a mediocre performer in the period of analysis. Only CAD and NZD indices managed to standout from the crowd. SEK demonstrated clear bearishness earlier in the period, but ended up with the rest of the indices on Monday. USD index started demonstrating clear bullish bias from mid day on Wednesday when it hit the period low (0.15% below the base value) at 10 GMT. Despite the worse than expected numbers earlier in the day, FOMC Meeting Minutes helped USD index to end the day 0.29% above the base value. Thursday did no bring much change as most of the US data came out better than expected.




Index continued to climb higher on Friday as all of the UK’s and some key Canadian numbers came out worse than expected and directed some flows in to the USD helping it to gain additional 0.1%. Substantially worse than expected Flash Services PMI numbers dragged the index closer to the base value. It ended Monday 0.3% lower than started. No major surprises were seen in numbers on Tuesday which allowed USD index to hold the status quo.
Gains and losses against other counterparts were rather marginal, most were in +/-0.2% range. Only noticeable results were seen against CAD, 1.23% gains, and NZD, 0.48% loss.




We saw a few rare cases when market (Dukascopy Bank Volatility Index) and EUR/USD showed substantially different reactions to the same events. First case took place on Thursday, when Chinese Flash Manufacturing PMI numbers shook the market (volatility 1.3 times higher than usual), but EUR/USD volatility was at 60-70% of it’s usual (long term) level. Second case was observed on Friday, when UK Retail Sales numbers came out. EUR/USD volatility approached, but remained below the long term value although market volatility at the same time was 1.2 times higher than usual. Despite the number of events/data releases on Wednesday the volatility was rather subdued, just slightly above the long term values.

Highlights of the latest Marker Research release on USD.

Full research available here.



As most of the other currency indices, USD, ended the period of analysis below the base (opening value). The only two noticeable outperformers were the SEK and NZD Indices. The first one benefited heavily from the Eurozone data on Friday and yesterday, whereas the latter one got a boost from the Asia-Pacific data releases on weekend. USD index started the period with a 0.4% gain on the back of the New Home Sales data. That was the highest level of the index in the period of the analysis. It started to demonstrate clear bearish bias on Thursday as major data releases from other economies were coming out better than expected and US numbers, even when better than expected, weren't that optimistic.




Index continued to trail lower on Friday as better than expected Eurozone data early in the day directed some of the capital flows from the USD. Although we saw mixed results in the data releases from the US later in the day, the good ones managed to stabilise the dollar as it hit the lowest level in the period, 0.53% below the base value. Index started to slowly climb higher afterwards as slightly better than expected, low to medium impact, data releases from the US helped it to gain 0.2%. We saw few rather low impact data releases from the US yesterday. That didn’t change much for the USD index as it ended the period 0.18% below the base value. Most of the other currency indices, showed pretty similar, 0.2% below the base value, results as well.




We didn’t sea any more of major mismatches between the EUR/USD and market (Dukascopy Bank Volatility Index) volatility patterns as it was becoming usual in the last few weeks. We saw rather few data releases on Wednesday at all, due to this, EUR/USD volatility, surprisingly, peaked till 2 times the usual (long term) level during the release of New Home Sales numbers. Range of data releases, around 3 times more than on Wednesday, kept the EUR/USD volatility fuelled till 1.8-1.7 times the normal level for most of the day. Highlight of the week was seen on Friday as Eurozone CPI Flash Estimate and Unemployment Rate numbers boosted the EUR/USD volatility level till the highest level in the period—4.6 times the usual level.

Highlights of the latest Marker Research release on USD.

Full research available here.



Euro index was one of the best performers last week. It was surpassed only by the aussie and kiwi indices and, despite the 1.2 cap between the EUR/CHF held by the Swiss National bank, even managed to surpass CHF index. Overall, the week was rather calm for the Euro index as the minimum and maximum values were just 0.5% from base (opening) value and we saw only one major move in the period. That was when UK’s Asset Purchase Facility and Official Bank Rate and ECB’s Minimum bid Rate were announced on Thursday. It helped Euro index to gain 0.6% on the news alone and caused it to demonstrate clear bullish bias for the rest of the period.




Before that, however, Euro index spent clear majority of the time below the base value. Spanish and Italian Manufacturing PMI’s on Monday came out slightly worse than expected which send the euro index 0.1% below the base value. Eurozone Final Manufacturing PMI later in the day came out as expected which stabilized, but failed to reignite the confidence in the Euro. It remained around 0.1% below the base value till Wednesday. That’s when it started to slowly trail lower and hit the period low, 0.5% below the base value, right before the mentioned UK’s and ECB’s data releases on Thursday. JPY was the worst performance last week. It suffered heavily from the changed risk appetite and comments by the advisors to the Japan’s 1.26 trillion USD public pension fund.




We saw a slight decrease in volatility last week. Elevated volatility in the market (Dukascopy Bank Volatility Index) was observed in 28% of the time whereas historic average is at around 35%. Same gauge in the currency pair’s was noticeably below historical levels as well. Besides that, average volatilities of currency pairs were below the usual (long term). Substantial volatility levels were seen only in CHF crosses, which most likely happened due to informational noise created by the recent referendum vote on quotas for immigrants to the Switzerland. The highest EUR/USD volatility, 3.8 times the usual level, was observed on Thursday. That’s when UK’s Asset Purchase Facility numbers and rates from BOE and ECB where announced.

February Release of Dukascopy Bank Sentiment Index

Video version will be available here.



- The six-month and three-year global economic expectations worsened in February, a Dukascopy Bank SA poll showed. The six-month economic sentiment index declined 0.02 to 0.62, after declining to 0.64 in January. The three-year economic outlook deteriorated 0.04 to 0.69.
- Respondents became more pessimistic about the six-month and three-year European economic outlooks in February. The six-month economic sentiment index declined 0.01 to 0.52, the lowest level since September 2013. The three-year outlook worsened 0.04 to 0.60.
- The North American economic outlooks also deteriorated. The six-month and three-year indices tumbled to 0.69 and 0.71, down from 0.73 and 0.80, accordingly.
- The Asia-Pacific six-month month and three-year economic expectations were little changed at 0.66 and 0.76, respectively.



Figure 3 presents the term structure of the Dukascopy Bank Sentiment Index (Y-axis) mapped against GDP growth forecasts made by poll respondents (X-axis). Overall, DBSI values and GDP growth forecasts match directionally, suggesting the global economy will perform better three years from now.
Respondents revised the European six-month and three-year economic growth forecasts to 0.50% and 1.13% in February, from 0.62% and 1.17% respectively in January.
Poll respondents suggest that the North American economy will expand an annualized 1.83% six months from now and 2.27 three years from now.
The Asia-Pacific economic growth projections are the most prominent. Experts forecast growth of 3.36% and 3.90% six months and three years from now respectively.



Figure 4 presents the business cycle and its phases - expansion (real GDP is increasing), peak (real GDP stops increasing and begins decreasing), contraction or recession (real GDP is decreasing), and trough (real GDP stops decreasing and begins increasing).
Respondents are divided on the European six-month EDS. Ten claim the economy will be in a recession while eleven say the economy will be expanding.
Experts support the view that the North American economy will be expanding both six months and three years from now.
Experts are united about the Asia-Pacific 3-year EDS – twenty three experts forecast expansion and two say the economy will reach its peak.

Highlights of the latest Marker Research release on JPY.

Full research available here.



JPY index, surprisingly, was the best performer last week closing 1.34% above the base (opening) value. However, as we can see from the graph, this happened mainly due to the gains yesterday which occurred due to changed risk appetite as anxiety over Ukraine renewed. On Friday last week, Yen index lost around 0.4% as better than expected US Non-Farm Employment Change data redirected some of the capital flows towards USD. However, we saw a rather sharp recovery soon after. JPY index remained around base value till Tuesday. That’s when JPY index gained 0.35% as investors tried to dodge risk due to concerns about China’s economic health and fallen US stock indices.



Additional, 0.3%, boost came on Wednesday as BOJ Monthly Report and Consumer Confidence boosted the trust in Yen as a safe haven currency. After that, however, we saw the JPY, together with USD, index to trail down until Friday’s noon.
JPY posted gains against all of it’s counterparts. The smallest one were 0.35% against NZD, which was boosted by the RBNZ, and 0.69% against CHF, which also, as Yen, benefited from the changed risk perception due to the anxiety over Ukraine. Gains against Euro, greenback and Swedish krona were around 1.2%. Gains against pound, which was hit heavily by the FX oversight by the BOE scandal, amounted to 1.9%. The biggest gains in the period, almost 2%, were posted against loonie which suffered from the US and Canadian data releases on Friday’s noon last week.




Despite the political tension in the US and Europe over Ukraine we are continuing to observe rather low levels of volatility in the market. Elevated volatility (above usual) in the market observed in 26% of the time although historical average would be around 30-35%. We do see an increase in average volatility in some of the currency pairs, but in most of the cases it remains substantially below the usual (long term) level (Index value 1).
USD/JPY demonstrated highest levels of volatility at the end of last week. 5.1 times higher than usual volatility was reached on US and Canadian data releases on Friday noon; 4.5 times higher than usual volatility was seen on Sunday, during first hours when market opened.

Highlights of the latest Marker Research release on EUR.

Full research available here.



Amid a lack of fundamental data from Europe, and a bunch of important economic data releases from Australia, Japan and New Zealand it was not a surprise that the single currency managed to change only by 0.1%. Moreover, despite a fluctuation in a 135-pip range, the most traded currency pair was almost unchanged over the observed period. With almost 70% of opened position being short on EUR/USD and with the single currency being sold in 64% of the time, it was not a surprise that the Euro index remained around the base value in the first half of the week and moved lower closer to Friday. The U.S. Dollar index lost only 0.27% even despite positive retail sales and jobless claims on Thursday.




Last week’s highlights were RBNZ’s meeting and a series of reports from Japan, as ahead of April’s sales tax hike each set of data has stronger market impact. On Thursday the Japanese Yen rocketed 1.07% as Japan’s manufacturing data came stronger-than-expected, while renewed anxiety over China and Ukraine boosted demand for safe haven. A rate hike from the RBNZ was already priced in by markets, as constant flow of positive data pushed analysts to invest in the New Zealand currency. Therefore, the Kiwi advanced only 0.65% over the period, while more rate hikes are suggesting only further rise of the New Zealand currency. At the same time, BoE’s deputy governor’s Charlie Bean comments about too strong Pound dragged the Sterling down over the week, resulting in a 0.93% drop, and even positive manufacturing data was not able to limit losses.




Financial markets remained rather calm during the last week, with an average volatility being mostly below the historic values, while elevated market volatility was registered only in 26% of the time. Until Thursday the most traded currency pair’s volatility was below the Dukascopy Bank Volatility Index, as markets were driven by China’s CPI data, Japan’s GDP and comments from the Bank of Japan. On Tuesday EUR/USD volatility remained around 0.66, while overall market’s volatility soared to 1.17 on 16:00 GMT on jitters about Chinese growth outlook. A massive sell-off of emerging markets currencies sparked demand for Japanese Yen, with USD/JPY and EUR/JPY volatility being above the average market’s elevated volatility.

Highlights of the latest Marker Research release on GBP.

Full research available here.



Britain’s currency was one of the worst-performing major currencies during the last five trading days, with the GBP index falling 0.52%. The biggest gainers, however, were Japanese Yen, Aussie and kiwi. Therefore, it was not a surprise that the Pound posted huge loses versus these three currencies. After a rate hike from the RBNZ on March 12, New Zealand currency received a strong bullish bias that pushed it higher over the described period. New Zealand is now the first developed economy that increasing its key refinancing rate, and according to the latest fundamental data, more rate hikes will be made later this year, hence, NZD crosses will continue their movement to the north.




AUD index climbed 1.41% as the number of employed people increased by a net 47,300 in February. At the same time, RBA’s minutes on March 18 pushed the index 0.38% higher. The Sterling was almost unchanged on March 12, staying around the base value, and after a slight drop moved back to its base value as the massive sell-off of the U.S. Dollar continued to feed Pound’s bulls. Disappointing trade figures for January dragged the gauge 0.20% lower, while Ukraine’s decision not to recognize Crimea as a part of the Russian Federation, boosted risk-aversion sentiment, pushing the Pound lower versus other major currencies. Finally, this week’s stronger-than-expected statistics from the U.K. labour market, helped the GBP index to regain some of the earlier losses, with the measure rising 0.29% in the first half of the day.



Financial markets remained rather calm over the described period, as elevate market volatility was observed only in 28% of the time. The cable itself was second most volatile currency couple, with the pair trading above normal volatility in the 34% of the time. The most attractive currency pair for investors was NZD/USD, as RBNZ’s hawkish comments and a decision to increase its interest rate pushed pair to its historically high level above 0.86. The less volatile cross was EUR/CHF, with the elevated volatility recorded only in 21% of the time. Due to a bunch of important releases from Asia and Pacific Dukascopy Volatility index during Tokyo and Sydney trading session. On March 13 Ukraine worries fuelled safe-haven demand, with volatility index rising to 2.09.

Highlights of the latest Marker Research release on EUR.

Full research available here.



Euro index once again was “the best of the worst” kind of performer in the last 5 trading days. It outperformed only three, was surpassed by five currency indices and ended the period of analysis below the base (opening) value. There were few factors which had the biggest impact on that. First, substantially worse than expected ZEW data on Tuesday. The gauge slid below the value of 50 for the first time since October, 2013. This caused Euro index to loose 0.22%. Second, arguably the most important, factor was yesterday’s EU Economic Summit which highlighted the tension between the EU and Russia due to events in Crimea.




The period, however, started well for the Euro index as it managed to gain 0.31% on the back of better than expected Eurozone Employment Change and worse than expected US PPI numbers. Worse than expected Eurozone PPI numbers on Monday, however, dragged the Euro index back to the base value.
In the period of analysis we observed one of the rare cases when Euro posted gains against Swiss franc despite the 1.2 gap held by the SNB. This happened due to the worse than anticipated German ZEW data on Tuesday which indicated possible hardships for the Swiss economy as well.




Volatility levels in the financial markets are remaining subdued. It could be easily argued that if not FOMC Economic Projections, Statement and Press Conference on Wednesday we would be seeing even lower levels of volatility as elevated volatility in the market, and in the most of currency pairs, remains below the historical 30-35% level. Besides that, average volatilities are below their usual (long term) values in all of the cases. In general, it could be argued that three periods pretty much defined the last period of analysis. First one being the already mentioned FOMC Economic Projections, Statement and Press Conference on Wednesday. Second being the Eurozone Employment Change and US PPI numbers on Friday.

Highlights of the latest Marker Research release on USD.

Full research available here.



USD index was second top performed last week, while Canadian Dollar index posted the steepest decline of 0.87%. Stephen Poloz comments on March 18 pushed the loonie 0.51% lower, as he pointed out the potential weakness in the land of the maple leaf in the first quarter of 2014. At the same time, RBA’s minutes and New Zealand current account figures pushed Aussie and Kiwi indexes 0.38% and 0.48% respectively. RBA minutes showed that record-low interest rate is boosting growth. Hawkish comments from the central bank helped Aussie index to become last week’s top performer, adding 1.45% to its value. In contrast, weak wholesale sales dragged Canadian Dollar 0.87% lower.




The fact that Dukascopy traders were buying the greenback in more than 60% of time during the period helped the index to climb 0.61% over the observed period. Moreover, the greenback appreciated against all major currencies, except the Aussie. During the first half of the week, Dollar remained slightly below its base value, while moderate inflation for February forced Dollar’s index to end Tuesday’s session at 99.62. Nevertheless, it was not a surprise that FOMC statement, with Janet Yellen hinting on the first rate hike, provided a significant boost the buck, sending the gauge 0.73% above its base value. While markets can already start pricing in the upcoming rate hike, better-then-expected jobless claims and Philly Fed manufacturing index supported the case the economy is strengthening.




Ahead of the FOMC meeting on March 19 markets remained rather calm, while after the statement currency pairs were facing strong supply and demand areas that were limiting market’s volatility. Therefore, the elevated market volatility was observed only in 23% of the time. The most volatile currency pair was USD/SEK, as Federal Reserve send the greenback higher, while Danske Bank comments that sanctions against Russia can affect Finland and Sweden hampered investors’ willingness to buy the Swedish Krone, considering it as a safe haven. It is important to mention that maximum volatility among all crosses wit the U.S. Dollar was higher than the maximum market’s volatility index during the observed period.

Hello Drt,

For Dukascopy Europe trading account, Is there any "Inactivity/ Maintenance/ or other" Frees/Charges if an account is not active for few months?

Hi!
For accounts in Dukascopy Bank SA - yes, there is such a fee, but for Dukascopy Europe such fees do not apply.

Highlights of the latest Marker Research release on EUR.

Full research available here.



Euro index was one of the worst performers in the period of analysis managing to clearly surpass only Swedish Krona and coming almost at par with Swiss frank. Clear indication of the underperformance is the fact that euro index spend only 1/3 of the period at or above the base (opening) value. Even when it managed to climb above it, the index could not advance higher the 0.21% level. Despite the range of Eurozone related events and data releases on Friday and Monday the Euro index remained around base value. It peaked till the period high, 0.21% above the base value, after worse than expected US Flash Manufacturing PMI data came out on Monday, but started to trail lower afterwards.




Moderate, 0.15%, recovery is seen on Tuesday when ECB president was speaking. However, that was just a temporary happening as Euro index continued to head southwards after that. Wednesday did not bring any changes in trend of the Euro index which lost 0.38% during the day. Although Eurozone M3 Money Supply data came out as expected and it seemed like it could stabilize the Euro, the worse than expected Eurozone Private Loans increased the rate of depreciation and caused the Euro index to end the period 0.92% below base value. Best performers in the period were aussie, kiwi and loonie indices. Oceanic currencies benefited from the concerns about Chinese economy as China’s central bank might intervene in to the markets in order to raise domestic consumption, raising the demand for imports as well.




Overall volatility levels remain subdued. Although some currencies demonstrate elevated volatility in 30-35% of the time, which is close to historical levels, there as quite a few cases on the lower end of the spectrum. As a consequence, elevated volatility in the market is seen in 23% of the time. Besides that, in all of the cases, market and individual currency pairs, average volatilities are at 70 to 90% of the usual (long term) level. One unusual observation in this period is that although market (Dukascopy Bank Volatility Indices) and EUR/USD volatility paths coincided, the EUR/USD volatility showed much greater magnitude of volatility—period high at 4.5, usual peaks till 2 times higher levels of volatility than usual.

Highlights of the latest Marker Research release on USD.

Full research available here.



USD index ended the last week in a negative territory, posting a 0.51% depreciation, as gains versus the single currency, Yen, Franc and Swedish Krone were almost unremarkable (except SEK), while loses against other major currencies were more noticeable. The Australian Dollar was last week’s top performer, adding more than 2% to its base value as even despite a lack of fundamental data, comments from Australian policymakers provided a significant boost to the currency. RBA's Governor highlighted positive developments in the economy, saying the transition phase from mining-led demand is moving to its end. Central bank’s comments are pushing the Aussie higher for the fourth consecutive week.




The greenback remained almost unchanged last Monday, staying around its base value amid a lack of fundamental data from the world’s largest economy. However, later, after a release of disappointing manufacturing PMI from Markit, the USD gauge moved to 99.93. On Tuesday new home sales dragged the index lower, while durable goods orders a day later provided additional support for the currency, helping it to stay around 99.64. On Thursday the Commerce Department said the nation's GDP expanded 2.6% in the three months through December, more than the 2.4% reported earlier, however, weaker than the 2.7% growth predicted by analysts. While household spending was still driving economic growth, weaker-than-excepted data dragged the USD index to 99.31.




Markets are preparing for the ECB meeting, and tax hike from the Japanese government that all will add more liquidity, therefore, financial markets remained rather calm over the week, as the elevated volatility was observed only in 24% of the time. The USD/CHF currency pair was the most volatile last week, as a bunch of important fundamental data from the United States influenced the buck, while SNB’s worrying comments about risks of deflation dragged market’s attention to the Swiss Franc. Moreover, SNB’s quarterly report resulted a 0.86% drop of the Franc. It is important to mention that AUD/USD was the least volatile pair, while it still managed to gain more than 2% over the period, meaning that the pair was steadily appreciating, without any spikes.

Highlights of the latest Marker Research release on JPY.

Full research available here.



The Japanese Yen was the worse-performing currency among nine major currencies, with the Yen index falling 1.71% during the last five trading days. The Yen declined recorded losses versus all other currencies, while the steepest declines were logged versus the loonie, Aussie and Sterling. Canadian currency posted a 1.32% gain over the period, as stronger-than-expected GDP figures for January eased some of the pressure on the Bank of Canada. At the same time, following the latest comments from the RBA and RBNZ the Aussie and Kiwi continued its appreciation, posting 0.97% and 0.22% gains respectively. Both economies are gaining momentum and with hawkish central bank’s view the appreciation is likely to continue.




On the contrary, the outlook for the Yen is not very optimistic, as after a tax hike on April 1 the economy is projected to slow down, bolstering the case the Bank of Japan will be forced to expand its stimulus programme. Currently, analysts believe that May’s policy meeting will be the most appropriate time for Kuroda to pull the trigger. Due to a lack of fundamental data on March 26 and 27 the Yen remained around the base value, however later, after a bunch of economic data failed to convince BoJ’s efforts were substantial enough to prepare the economy for a tax hike, provoked a sell-off of the Japanese Yen. Despite stable inflation figures, manufacturing data and growing uncertainty among central bank’s members resulted in a 1.71% drop, as investors began pricing in further measures by the BoJ.




The USD/JPY was highly volatile over the observed period, with major spikes representing great opportunities for investors. Nevertheless, the elevated market volatility was observed only in 21% of the time– the second lowest among other major currency pairs. However, despite the fact the elevated volatility on NZD/USD was recorded only in 20% of the observed period, the pair managed to reach the multi-year high, while kiwi index soared to its historic high, meaning that the pair followed the trend without bouncing between important support and resistance lines, making any trade on the pair less risky. In contrast, the EUR/GBP pair’s volatility was above the average in 37% of the time, as an abundance of fundamental data from the U.K. and Europe resulted in pair’s high volatility.

Highlights of the latest Marker Research release on EUR.

Full research available here.



Euro index was one of the best performers last week. GBP came at pat and only the USD and the CAD index managed to post slightly better, 0.15% and 0.09%, respectively, results. Almost from the very beginning of the period it started showing rather strong bullish bias. At the end of Friday it was already 0.27% above the base value. Even worse than expected Eurozone CPI data on Monday did not manage to negate this trend, just to pause it for some time. However, it resumed appreciating on Tuesday and continued to do so till the Wednesday noon. That’s when worse than expected Eurozone final GDP and PPI numbers came out. However, the impact was very marginal.



Index lost only 0.08% on the back of this data, but resumed the appreciation afterwards. It reached the highest point in the period, 0.78% above the base value, right before the ECB announced it’s Minimum Bid rate yesterday. Despite the recent economic data (below the target inflation and stagnant unemployment) ECB decided to keep the rates unchanged. This dragged the Euro index 0.2% lower, from which it did not manage to recover and ended the period 0.52% above the base value. Substantially larger impact was felt by the Swiss franc index which lost 0.43% on this data alone. This erased almost all of it’s gains in the period. Biggest looser in the period were the yen and kiwi indices, 1.17% and 1.07% loses, respectively, in the period of analysis.



We saw quite a few substantial peaks in market (Dukascopy Bank Volatility index) and EUR/USD volatility in the period of analysis. However, they were very concentrated and short term, therefore the market showed subdued levels of volatility. Elevated volatility in the market and EUR/USD was observed in approximately 20% of the time as historical levels are at 30-35%. In addition, average volatility of the market and currency pair’s is at 70-80% of the usual (long term) level. There were three major periods of excess volatility in the period of analysis. First took place on Friday last week when UK’s Current Account and Final GDP numbers came out. Second, took place on Monday when Eurozone Flash Estimate CPI showed slightly worse than anticipated numbers. The last, which took place yesterday, could be called the highlight of the week.

March Release of Dukascopy Bank Sentiment Index

Video version will be available here.


The six-month global economic expectations improved by 0.02 in March and reached the level of 0.64, while the three-year sentiment index decreased for the second consecutive month and stood at 0.68, a Dukascopy Bank SA poll showed.
 The European six-month economic outlook recovered from 0.52, the lowest level since September 2013, to 0.55. However, poll respondents did not revise their expectations regarding the three-year index, and the reading stood unchanged at 0.60 in March.
 Experts became less optimistic about the North American region as both the six-month and three-year expectations worsened slightly. The six-month outlook declined 0.01 to 0.68, while the three-year sentiment fell by 0.02 to 0.69, which is October 2012 low.
 The Asia-Pacific economy is forecasted to expand in six-month time as the index grew by 0.04 to 0.70 in March. However, the three-year prospects became less attractive compared to the February poll’s results as the experts’ three-year outlook worsened to 0.74.




Figure 4 presents the business cycle and its phases: expansion (real GDP is increasing), peak (real GDP stops increasing and begins decreasing), contraction or recession (real GDP is decreasing), and trough (real GDP stops decreasing and begins increasing).
Majority of poll respondents consider the European six-month and three-year EDS to reach ‘Expansion’ phase, while only eleven believe economy will be in recession six months from now and eight—three years from now.
Twenty-seven experts anticipate that the North American region will experience economic expansion by October 2014 and only three believe the economy will slow down. Respondents are less optimistic about North-American three-year EDS as twenty-four consider region’s economy to expand, while six expect it to reach recession.
The Asia-Pacific economy is forecasted to grow both in the short and long term by vast majority of experts.




Figure 9 presents a discrepancy in views on the economic outlook among local and foreign experts. March poll results reveal that respondents from Europe are more optimistic about the local economic outlook compared to their foreign colleagues. The same is true for the Asia-Pacific region.
Europe: Local experts are more optimistic about the European six-month and three-year economic outlook compared to their foreign colleagues, with a discrepancy in views of 0.4 for both time horizons.
North America: Local respondents from North America are more optimistic about the regional six-month outlook (0.73 vs. 0.68), however the discrepancy in views reaches –0.02 when it comes to the three-year growth prospects.
Asia-Pacific: Local respondents are more optimistic (0.78) about the Asia-Pacific six-month economic prospects compared to foreign experts (0.66). The same tendency applies for longer time span, as the discrepancy in views sheds to 0.13 for the three-year economic outlook.

Economic Research: Forecasting Models for Exchange Rate

The science of prognostics has been going through a rapid and fruitful development in the past decades, with various forecasting methods, procedures and approaches flooding the economic world. It is estimated that there are more than 100 prediction methods, and sometimes the diversity makes it difficult to choose the one that would do the trick. In our new research we try and compare a few of the most popular techniques, and see if they are in fact suitable for forecasting currency exchange rates.

Results

The 5-day window SMA model gives the worst results in our analysis. The model captures the general direction of the series and the main peaks and troughs, but is not sensitive to small changes. We can thus say that the result is too smoothed. Which is hardly surprising since the forecast is just the average of the previous values. The exponential smoothing, on the other hand, gives much better results. The EMA curve not only moves in the right direction, but also shows even the small motions of the price. In this case a lot depends on the choice of the constant α. We use α=0.8, therefore putting the largest weight on the last observation. Visually, however, it is obvious that the best results come from ARIMA(1,1,1), DLM, and ANN(3-2-1) - their predictions practically coincide (see Figure 4).

All forecasting curves are lagged behind the real values. On of the reasons for this is the strong autocorrelation in the series, but the main cause of the forecast delay is the huge weight of the previous observation in the models. All mentioned techniques increasingly depend on the last value of the time series, with SMA and ANN being the only exceptions. SMA5 puts equal weights on all five last observations, while ANN fits weights values for the three previous data points. As this forecasting bias seems to be rather considerable, it is natural to wonder whether it is altogether worth it to take trouble over the models. Thus we compare our results to the ones we would obtain by simply assuming the present value of the prediction to be equal to the observation in the previous time moment.


Conclusion
We have studied five forecasting models with different construction techniques and levels of difficulty. In total, all received results followed the general motion of the real series, some showing slightly more precision than others. Notably, the forecast given by the classical ARIMA model was even better than the results of more complex DLM and ANN. As ARIMA is also easier and faster to employ, the superior results make it unquestionably the best forecasting method in our study. However, SMA and EMA models are also very simple in both understanding and realisation, with SMA giving the most smooth curves, but EMA being more dynamic. So if the high precision of the forecast is not the main target of analysis, both these methods can also be used.
It is noteworthy, however, that all the models give lagged, or delayed, predictions, and do not offer much superiority over a simple lagged series. Such outcome is dictated by the nature of time series – it is non-stationary and strongly autocorrelated. Therefore, in cases when pointwise and indefinably accurate predictions would suffice, it might be more sensible to save time and effort, and use the lagged series.

Quarterly Report: Q2 of 2014

Full report

Dear traders,

We entered this year full of optimism and hope, as our worries over the USA economy did not materialise and the overall situation in the world seemed to be improving. However, geopolitical tensions emerged and took us by surprise, revealing that at the very least the near future is not going to be characterised by stability and calmness. Since the latest events are highly unlikely to go unnoticed in the context of global economic recovery, a return to the risk-on environment, which was expected to develop in early 2014, will be postponed.

Unfortunately, this is not the only reason to remain cautious and doubtful this quarter. The 18-nation bloc is currently battling with stagnating price growth. We are all well aware of the possible implication if the right action is not taken in time. And even though Japan looks to be close to achieving success by exiting the vicious circle, as inflation is currently fluctuating around 1.5%, this example forced the Federal Reserve, as it now seems, to do a little in excess of what was required in order to rule out any possibility of facing deflation.

In the meantime, the European Central Bank, led by Mario Draghi, refrains from any bold measures for the moment, even though the Euro is on the rise. This tendency of the currency to appreciate may further aggravate the situation, as it increases the risk of declining prices. As a result, many of the economists expect the monetary authority to turn to unconventional easing measures in order to veer the union’s economy away from the spiral the Japan’s economy found itself back in the 90’s.

And although the aforementioned may create a somewhat gloomy representation of reality, it serves it just reminds us to ‘trust, but verify’ and to never forget about hedging. Always being ready for the worst possible course of events in order to take proactive measures and prevent them from taking place or at least limiting the potential negative impact of the unwanted events is one of the keys to success in the long run.

Kind regards,
Alexander Suhobokov, CFA, FRM
Head of Research
Dukascopy Bank SA

Highlights of the latest Marker Research release on CHF.

Full research available here.



The Swiss Franc was one out of four losers during the last five trading days, with CHF index posting a 0.68% drop. At the same time, other currencies that are considered as safe-haven, including the Yen, Aussie and kiwi, posted solid gains. The Yen soared 1.7% over the period, as together with risk-on sentiment, comments from the Bank of Japan diminished hopes for fresh stimulus soon, resulting in a strong interest in the Yen. Moreover, the currency is likely to appreciate further, as weak labour data from the United States dragged the USD 0.55% lower, while boost the Bank of Japan is unlikely to be short-lived. The single currency was steadily depreciating over the observed period following ECB’s meeting.



Refreshed Ukraine tensions were the main reason why investors looked forward a less riskier asset during the last five trading days. Swiss Franc is considered to be one the most attractive currencies for investors when the risk-on sentiment prevails the market. Nonetheless, hawkish RBA and RBNZ as well as confident speech from BoJ’s Kuroda, made other safe-haven assets more attractive than the Alpine country’s currency. Even positive fundamentals from Switzerland were not able to change the sentiment. The CHF index never moved into the positive territory over the described period, suggesting even stronger-than-expected inflation, foreign currency reserves and retail sales has modest impact on financial markets.




Even an abundance of important economic releases and central bank’s comments were not able to provide a significant boost to markets, with elevated market volatility recorded only in 19% of the time. The main reason for such a calm session was a lack of data this Monday and Tuesday, with only the BoJ’s meeting having a significant impact on markets. Remarkable that the most traded currency pair was the least volatile even despite Mario Draghi’s hints about the possible implementation of the U.S.-style quantitative easing. In contrast, the USD/JPY pair was the most volatile, with the elevated volatility being in seen in 37% of the observed period. BoJ’s Governor’s Kuroda’s confidence dragged attention to the Yen, with the pair plunging to 101.55.

Highlights of the latest Marker Research release on EUR.

Full research available here.



The Euro index remained virtually on the same level throughout the week, moving in the narrow band between 99.5 and 99.8. It reached its lowest point on Wednesday morning, losing more than half per cent of the initial value. Later on, seemingly in anticipation of German and British trade balance and ECB Monthly bulletin releases, the index started its slow growth and crossed the 100 points mark by Friday, resulting in a 0.17% change. With that the EUR index significantly outranged the USD and the SEK indices, and took the lead over its GBP, CAD, and kiwi counterparts that were ahead of it during the whole period.



Other currency indices were more active during the period. The lowering of the unemployment rate in Canada caused a sharp rise of the CAD index in the yellow area, giving it a good head start. But the impulse did not last, and the index ended the period with a 0.34% loss. JPY, AUD, and NZD were steadily rising during the week, but the Japanese currency was the only one that managed to preserve the direction and thus ended up in the leading position.
Worse than expected values of US unemployment rate and Non-Farm Employment Change, in turn, initiated a lengthy fall in the USD index, leaving it with a 1.26% loss at the end of the period. European currencies seemed to start off following the lead, but, for the most part, managed to recover further into the week.