Dukascopy Market and Economic Research

May release of Dukascopy Bank Sentiment Index

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1. Professors’ short and long term global economic outlooks were little changed in May, with the gauges hovering around the highest level seen this year at 0.73 and 0.66, respectively.
2. While experts’ optimism over Europe’s economy in the foreseeable future increased to a new record high in 2014, the long-term prospects are believed to deteriorate, as the index fell 0.05 points from the level recorded a month earlier.
3. Six-month index for the North American economy rose once again to 0.73, last time recorded in January, while the three-year economic outlook remained unchanged. It would be interesting to observe how the recent negative data concerning the fall of the U.S. GDP by 1% will be reflected in academia experts’ assessment of the region’s economy in the June release of the report.
4. Asia-Pacific saw its short-term sentiment index decrease by 0.04 in May amidst a slowdown in China, the world’s second-largest economy, which urged officials to consider further easing of monetary policy to kick-start the economy, and as the Japanese economy is sending mixed signals following the sales tax hike in April. The long-term sentiment index, however, jumped by 0.06 to the highest level this year at 0.79.

Figure 3 represents the term structure of 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.
The European economy is expected to grow an annualized 0.90% over the next six-month period amidst Bundesbank’s projections that Germany, the European powerhouse, will grow at a slower pace in the coming months, while France’s economic recovery is struggling to gain momentum. By 2017, the region’s economy is seen reaching a 1.47% growth compared to 1.53% projected in the May report.
Even though the short-term economic sentiment index for North America rose, the expected rate of growth declined to 1.67% from 1.87% in the previous month. A recent report, which showed that the U.S. economy shrank for the first time in three years, may shape the professors’ projections in the short run. Also, the Canadian GDP is predicted to outpace the U.S. GDP growth, but later in the year the U.S. will regain its leading position. In the long term, the region’s economy is seen to grow at 2.33%.
As usual Asia-Pacific is expected to outpace Europe and North America in terms of GDP growth. Poll respondents forecast the economy to grow at annualized 3.20% in the near future and 4.00% over the long-term.


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).
17 respondents out of 30 believe that Europe will be in the “Expansion” phase in the next six-month period, while the rest still share a gloomy outlook on the European economy. In three years the economy is also seen to be expanding by the majority of the poll participants.
More and more professors start to believe that North America’s economy will gather steam in the foreseeable future, even despite the recent U.S. GDP data which fell for the first time in three years. In the long run the economy is expected to move closer to the “Business Peak”.
Nevertheless, the Asia-Pacific region is seen to outperform America both within the next six months and three years, as optimism about the region’s economy continues to grow.


Figure 5 shows the six-month economic outlook for Europe, North America, and Asia-Pacific. The global six-month economic prospects fell slightly by 0.01 to 0.65 in May, as experts have become less optimistic about economic prospects in every single region.
For two straight months, no region has received a “definitely negative” outlook, while the number of survey participants who shared a “fairly negative” assessment declined in May.
Half of the respondents claim that the economic outlook for the European economy is balanced, while 40% share a “fairly positive” sentiment, which is buoyed by a slight increase in the economic outlook.
When having a look at the sentiment for the North American and Asia-Pacific economies, it appeared that experts are more optimistic about the former, as 87% shared a positive outlook compared to just 57% for the latter one. Also, figure 6 shows that the North American economy is set to continue gathering steam in the foreseeable future.
40% of the participants share a “neutral” outlook for Asia-Pacific, while only 3% are pessimistic about the economic prospects of the region.


Figure 7 presents the three-year economic outlook for Europe, North America, and Asia-Pacific. The three-year global economic outlook remained unchanged from the previous month at 0.71.
While 20% of the survey participants share a negative outlook on the European economy, 23% see the economy to balance and 56% are upbeat about the future of the region, compared to a 60% share a month earlier.
Despite the fact that three-year sentiment index for North-America remained unchanged from the previous month at 0.75, the number of people who share an upbeat economic sentiment declined to 84% from 90% in April. The rest assume that the three-year economic sentiment is “neutral”. Besides, North-America is the only region which avoided a negative assessment.
33% of those surveyed share a “definitely positive” view on the Asia-Pacific economy and 53% feel “fairly positive”, buoyed by a 0.06 increase to this year’s high in the economic sentiment index. However, 3% of the respondents were not optimistic about the region’s 2017 economic prospects, saying that the outlook is “fairly negative”, while 10% feel “neutral” about Asia-Pacific’s economy.


May poll results reveal that the local professors from North America and Asia-Pacific are more optimistic about the state of the respective economies compared to their foreign colleagues. The only issue where the professors are unequivocal is the European six-month economic outlook.
Europe: Both local and foreign academia experts appeared to agree when evaluating Europe’s short-term economic prospects, but there is a slight difference in views concerning European economic future, with foreign respondents being more positive about the continent’s economy.
North America: In May, the local respondents from North America were more optimistic about both the regional six-month and three-year outlooks, with the discrepancy in views rising to 0.10 and 0.12, respectively.
Asia-Pacific: The local experts have been more upbeat about their economic situation than their foreign colleagues for five months now. However, the discrepancy in views for the long term outlook contracted compared to the previous month, when it stood at 0.13.

Highlights of the latest Marker Research release on AUD.
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The Australian Dollar was the best performing major currency over the last five trading days, with AUD index adding 0.70%. The U.S. Dollar, the Euro and the Swiss France also advanced around 0.50%. Despite disappointing statistics from the world’s largest economy, month-end needs for the buck spurred demand for the currency, while the European currency shrugged off the upcoming ECB’s meeting and logged gains as well. The Franc benefitted from Euro’s performance even despite weaker-than-expected GDP, KOF economic barometer as well as manufacturing activity, once again adding to signs fundamentals from the Alpine country are having muted impact on markets.




A bunch of high importance economic releases, including Canada and U.S. GDP, Japan’s inflation, German inflation and Australia GDP all were the main catalysts over the last five trading days. Market was highly volatile as well, as Dukascopy Bank Volatility Index stayed in the turbulence zone for 36% of the time. Despite a lack of fundamentals from New Zealand, the Kiwi lost 1.39%, while NZD/USD cross remained in the turbulence zone for almost 50% of the observed period. The pair has been moving lower since May 6, however, it is a good sign for those, who are still long on the pair, as the RBNZ signalled future moves will be dependent on the exchange rate, hence, further depreciation will only bolster the case for more tightening.




As we have mentioned earlier, several economic events from Australian economy had significant impact on the performance of the Aussie. Moreover, they have substantially increased the level of significance of the South Pacific currency. The latest GDP report showed that mining sector accounted for around 80% of the overall GDP in the first quarter of 2014, highlighting the significance of the sector. While the economy is in the transition phase and searches for another driver, housing market is sending worrying signs, as there is a shortage in supply, while dwelling prices fell by most in more than five years. It means that reports from both sectors will continue pushing the Aussie.

Highlights of the latest Marker Research release on EUR.
Full research available here.

The week was packed with news, and the Euro Currency Index finally managed to come unstuck from the base level. The measure of strength of the single currency held amongst the top performers throughout the period, competing with GBP, CHF, and USD. The later lost ground by the end of the week, and the Euro index closed the period third best with a 0.45% gain—the currency’s highest resulting value since early April. Still, the long-term dynamics seems to be negative as the index posted loses both over one-month and six-month horizons, along with a relatively modest yearly gain.

Almost the whole observed period, with an exception of Thursday, was marked by moderate volatility levels, with maximal index values reaching only 1.6 and 2.2 for the market and the most traded currency pair, respectively. But on Thursday, when ECB announced its new Interest Rate, market volatility index reached 3.6 – the highest level this year. The 6.9 peak of the EUR/USD volatility index, in turn, is comparable only with the value from one month ago, when previous ECB Interest Rate Decision was released. As the week was reach with news, percentage of elevated volatility was also close to historic highs for both market and the pair.

The week began with relatively weak correlations in all observed correlation pairs, but by the end of Friday the bonds have gradually strengthened. The strong correlations lasted throughout most of the period, and the majority of combinations ended the week at the outstandingly high level of 0.9. However, on the threshold of the ECB Interest Rate decision there was a lowering in the strength of connections between the Euro crosses. Consequently, mean correlation values were not higher than usual.

Highlights of the latest Marker Research release on USD.

Full research available here.



An abundance of high importance economic data releases were shaking markets over the last week. The most remarkable event was the ECB press conference, however, the most impressive changes posted the Swedish Krone and Japanese and Canadian currencies. An improvement in Swedish industrial production and a pickup in new manufacturing orders, caused a massive market reaction, resulting in a 0.9% appreciation. In contrast, the Japanese Yen failed to gain from its safe-haven appeal and due to revival of stimulus expectations the currency declined 0.86%. Disappointing trade balance and a 7.0% unemployment pushed the loonie 1.02% lower.



The greenback, benefited from strong manufacturing PMI on Monday, as stronger demand raised hopes the economy will gain momentum in the second quarter. On Tuesday, wider-than-expected trade gap was outweighed by upbeat services PMI and the USD index was still fluctuating around 100.30. During the second half of the week, the currency began losing its value, as investors were focusing on Friday’s jobs report that was expected to show an uptick in the unemployment, due to winter slump. Jobless claims at 312,000 dragged the USD index into the negative territory. The index was hovering around 99.8, and even a 217,000 gain in employment and a 6.3% unemployment rate were not able to push the index back above its base value. The currency lost 0.13% by the end of the week, failing to benefit from ECB’s decision to trim rates.



Last week’s main catalyst were ECB’s press conference. It was not a surprise that a decision to cut all three rates and extend its LRTOs provoked a massive spike in volatility, pushing the Dukascopy Bank Volatility Index to 3.6 on Thursday, while the elevated market volatility stood in the turbulence zone for 37% of the time. The EUR/USD was one of the most volatile currency pairs, with volatility reaching the turbulence zone in 39% of the time. In theory, Draghi’s announcement should have provided a massive sell-off of the single currency. In contrast, the currency index gained 0.08% and it seems that the President is facing a serious conundrum now, as all these efforts were mostly aimed at Euro’s depreciation.

Highlights of the latest Marker Research release on GBP.

Full research available here.



Two South Pacific currencies were the most attractive for investors over the last five trading days. Both the Aussie and the kiwi added more than 1%, as despite a lack of data of disappointing figures, their safe-haven appeal and upbeat Chinese trade balance pushed currencies higher. While the outlook for the Aussie is not so clear due to disappointing sentiment figures, the kiwi is likely to continue appreciating ahead of the RBNZ meeting later this week. It seems that the New Zealand Dollar will remain the best performing major currency, as central bank is expected to continue tightening its monetary policy, hence, the kiwi will add to its recent gains.




Despite an abundance of fundamental data from the U.K., the Sterling remained almost unchanged, posting just a 0.16% drop. Moreover, the effect of the ECB’s decision to cut rates and extend its lending programme had a short-lived impact on the currency. After staying below the base value on Wednesday, June 4, a release of the U.K. services PMI pushed the currency index to 100.08, however later, disappointing PPI and GDP from the Eurozone, dragged the index back below 100-mark. The Bank of England offered another meatless meeting, staying pat on the monetary policy and providing no clues about the upcoming moves. This week, the manufacturing output and the anticipation of the statistics from the labour market provided a solid boost to the currency, with the GBP index hitting 100.18, meaning news from the U.K. have muted impact.




Markets are calming down following a bouncy week before. Due to the ECB’s decision to lose its monetary-policy further, market volatility stood in the turbulence zone for 37% of the time. Two days after the same indicator stands already at 28%. The AUD/USD was among the least volatile currency crosses over the last five trading days, with elevated volatility observed only in 23% of the time. This fact echoes with the average volatility index, which stands at 0.8– the lowest level among other major currency pairs. In contrast, the USD/CAD was the most attractive pair for risky traders, as exuberance of high importance economic releases was shaking the pair over the period.

Highlights of the latest Marker Research release on EUR.

Full research available here.

The ECB measures announced last Thursday were affecting the decline of the Euro during the whole period. In the past week the EUR Currency Index lost 1.27%, posting the year’s largest weekly loss for the single currency, while the loss of 2.57% was the most sizable among six-month changes. The Euro declined against all its major peers, including the Swiss Franc, which was following the single currency in the downtrend throughout the whole period.

The past five days were very tranquil for the Euro. The volatility of EUR/USD was mostly below average market volatility, save the moments when the news on the US dollar drove the pair’s volatility up. At some point the EUR/USD volatility index reached as low as 0.1 – the most modest value this year. The British pound brought the most turbulence to the market, as news from Great Britain raised the overall volatility several times this week. On Thursday evening it induced the biggest rise in GBP pairs’ volatility, and EUR/GBP volatility index crossed the 5 point mark.

The past period was the case when the currency significance measure is being driven by the weakness of the currency rather than by its strength. Most correlations with EUR/USD were shifted closer to their maxima, and the average values were above their reference levels. The tendency was especially pronounced in combinations with EUR/GBP and EUR/CAD. The crosses with CHF, in turn, produced notably subdued negative correlations and on many occasions supported the growth of the overall measure.

Highlights of the latest Marker Research release on USD.

Full research available here.

The New Zealand Dollar is still one of the best-performing currencies this year. The kiwi added 1.67% over the last week, with even more impressive gains in the past 130 and 250 trading days. The main reason for another boost was a decision by the RBNZ to make a third consecutive rate hike, bringing the official cash rate to 3.25%. In contrast, the single currency and the Swiss Franc were the main losers last week, each losing 1.26% and 1.19%, respectively. The impact of the latest rate cuts and the extension of the LTRO programme are finally feeding through the economy, while ECB’s officials’ comments and a monthly bulleting only added fuel to the fire.

The cable was one of the least attractive currency pairs in the recent weeks, as a lack of action from the Bank of England despite rosy outlook made investors confident there will be no rate hikes any time soon. Nevertheless, during a speech in London, Mark Carney claimed that investors, households and companies should brace themselves for a sooner-than-excepted tightening of the monetary policy. That is why the cable rocketed to 1.67-mark, while cable’s volatility stood in the turbulence zone for 44% of the time. In contrast, the EUR/CHF currency pair was the least volatile, as despite Swiss unemployment rate and retail sales, as well as a bunch of reports from the Eurozone, the pair has been under the pressure following ECB’s meeting.

The greenback was definitely not the high-importance currency that has been driving markets over the last week. The focus was turned to the weakness of the single currency, Mark Carney’s speech and June’s RBNZ’s meeting. That is why the average correlation coefficient was moving to the south during the week. The impact of the unemployment data on Friday, June 6, began to wane from the beginning of the last week, while a lack of data was not able to provide any support for the currency. The first major move to the downside was provoked by the U.K. manufacturing production, while later investors switched their focus to the number of job openings.

Highlights of the latest Marker Research release on GBP.

Full research available here.



For the first time in many months most of the major currencies posted losses over the observed period. At the same time, the Swedish Krone, the Pound and the New Zealand Dollar posted impressive gains. The Krone received a solid boost from the sharp drop in the unemployment rate, with positive data outweighing sluggish inflation data. Kiwi’s rally was a result of further tightening from the RBNZ, as policymakers made their third consecutive rate hike during June’s meeting, bringing the official cash rate to 3.25%. In contrast, most of the European currencies, as well as the Yen, U.S. and Canadian Dollars and the Aussie received worrying signs from domestic economies.



Taking into account Carney’s speech in London, it was not a surprise that all GBP crosses were the most volatile over the last five trading days, with the cable’s and EUR/GBP’s volatility trading in the turbulence zone for 45% and 43% of the time. In contrast, such currency pairs like USD/CAD, USD/CHF and EUR/CHF once again proved to be one of the least volatile pairs. That echoes with the average volatility index for all three pairs. It will be worth mentioning that the NZD/USD currency pair was observed in the turbulence zone only for 30% of the time, meaning that RBNZ’s decision to raise interest rates was widely expected by markets and a hike was already partially priced in.



The Swedish Krone, New Zealand Dollar and the Pound were the top-performers over the last five trading days. Nevertheless, neither unemployment from Sweden, nor RBNZ decision to raise interest rates, were not able to provide a long-term boost in correlations, or increase the significance of both currencies. In contrast, the Pound, had a big impact on financial markets, as the average correlation coefficients soared on Mark Carney, while all short-term mean correlation coefficients picked up. Moreover, the correlations can strengthen on Thursday, as ONS will unveil its retail sales report, which sometimes provides a 76-pip large boost for the cable and has strong impact on other crosses.

Highlights of the latest Marker Research release on EUR.

Full research available here.

Most of the observed currencies started the past week with a negative movement and kept to it until the middle of the period. The situation changed on Tuesday, when losers slowly began to move up. The exceptions were the Yen and the Australian Dollar, which were below the base level throughout the whole period. Some currencies, including the U.S. Dollar, dropped just after the Fed's Monetary Policy Statement and press conference. In the meantime, the Aussie jumped from 99.13 to 99.56 in the sharpest surge of the week. All currencies finished the period close to the base value, with the index change not exceeding 0.5% mark.

The period was marked by moderate volatility, with both market and the most traded currency pair’s volatility indices demonstrating close-to-average values. The same situation was observed in other major currency pairs. The most influential event of the week was the Fed’s Press Conference on Wednesday afternoon, since all the pairs with USD showed maximal volatility of the week against the background of this event.

During the past week the ECB’s influence on the single currency gave way to other global developments, and the correlations retreated closer to their usual levels, giving up the uniformity of the picture. As the Euro started to win its ground back with some of its peers while staying on the losing side against the others, its significance measure occupied more moderate levels, losing 0.1-0.2 points to previous period’s numbers. Reappearing negative correlations with the European crosses played the role of the main undermining force, while the counterweight was provided by EUR/USD syncing with EUR/CAD, EUR/JPY and EUR/GBP.

Highlights of the latest Marker Research release on USD.

Full research available here​.



The United States Dollar Index was one of the worst performers in the last week. It came virtually at par with aussie, which was posing for a major shortfall in the first part of the week, posted 0.18% gains against yen and 1.16% gains against Swedish Krona. The latter one was hit rather hard during the Eurogroup and ECOFIN meetings on Thursday and Friday. Loonie index was the best performer which gained close to a full percent on Friday on the Canada’s CPI and Retail Sales data. Performance of the greenback was rather dull last week. It spent the whole period in a rather narrow, 0.6%, range between 0.5% below and 0.1% above the base (opening) value.



It could be said that the performance of most of the index in the first part of the week was rather depressed. It seems that markets were still “sobering up” a bit from the ECB’s rate cut and RBNZ’s rate hike. More activity is observed starting from Wednesday’s afternoon, when Fed Interest Rate Decision and Monetary Policy Statement were released, and with Eurogorup and ECOFIN meetings taking place on Thursday and Friday. Canada’s CPI and Retail Sales added a bit to the stew as all of the numbers came out substantially better than expected, but effect was rather isolated—direct effect was seen only on loonie. To be fair, it seems this data release might have taken some capital flows from greenback, aussie and cable, but nothing out of the ordinary.

Highlights of the latest Marker Research release on CHF.

Full research available here​.



The Swiss Franc was the second best-performing currency over the last five trading days, climbing 0.48%. The currency added 1.88% over the last 250 trading days, as it was under the pressure from investors who were looking for a safe-haven investment. Over the last several months the interest for the Franc began to wane, and the CHF index lost 1.34%. Nevertheless, more gains are on the radar, as the ECB is loosening its monetary policy amid renewed concerns about deflation and slowing growth. What is more important, over the last five trading days, the Swiss Franc outperformed the single currency, which posted a 0.29% gain on the back of Dollar’s weakness.




On June 18 the National Institute of Economic Research said that Sweden’s central bank will be forces to cut interest rates again later this year amid risks of deflation in the largest Nordic country. Dovish comments pushed the Swedish Krone lower, resulting in a 1.67% loss over the observed period, and adding to earlier losses. The Riksbank will lower rates further, as economic growth for 2014 was cut to 2.2%, while unemployment is likely to hold at 8.1%. In contrast, the Canadian Dollar posted the most impressive gains, with CAD index adding 1.07%. The currency was supported by the upbeat inflation figures, with consumer prices hitting 2.3% in May, the first time in more than two years the CPI moved above the 2% level.




The USD/CHF currency pair once again proved to be driven by U.S. fundamentals, while statistics from the Alpine country had muted impact on the pair. However, it is also worth mentioning that overall market volatility was very subdued, with the volatility index trading in the turbulence zone for only 20% of the time – significantly below the average value. At the same time, the most remarkable performance was observed on the USD/SEK currency pair, as pair’s volatility entered turbulence zone in 43% of the time. On the contrary, major pairs like EUR/USD, USD/JPY, EUR/JPY and EUR/GBP were very calm, as a lack of economic reports and anticipations of July’s first week, which is full of important economic releases, lowered investors’ interest.

Highlights of the latest Marker Research release on EUR.

Full research available here​.



The Euro currency index left the excitement of the past periods behind and returned to the circling around the base value routine. The currency itself posted minor changes against most of its peers, with losses prevailing over gains. More noteworthy developments were recorded in EUR/CAD (-1.15%), EUR/NZD (-0.66%) and EUR/SEK (+0.64%), as these three currencies composed the best and the worst performers of the week. In the retrospective view, however, the period was little different from the previous one, posting virtually the same loses at the monthly and semi-annual horizons, and gaining just a little more over the year.



Volatility remained subdued on the market in general, and even more so in its observed EUR components. The most traded currency pair suffered elevated volatility in only a little more than one tenth of the period — almost half as much as the market. The most turbulent crosses were EUR/GBP and EUR/CHF. And while the disturbances in the Chunnel were more likely inflicted by the pound as they were also observed in its movements against the greenback, the volatility of EUR/CHF seemed to be related uniquely to the behaviour of the pair itself.



The Euro currency significance measure reached slightly higher positive levels compared to the previous period, but on average stayed in the same area of moderate influence. The components of the composite were all in their usual boundaries, with only EUR/GBP and EUR/CHF correlations standing out by concentrating too tightly around the zero. Most of the major changes in the measure were caused by components with some specific Euro counterpart, indicating the single currency’s inability to overwhelm developments on the foreign markets.

Highlights of the latest Marker Research release on USD.

Full research available here​.



United States dollar was one of the worst performers in the last five trading days. It managed to surpass only Swedish Krona and end the period 0.44% below the base value. Greenback started the period with a 0.2% dip after a between that expected China’s Flash Manufacturing PMI data boosted oceanic currencies. Greenback remained at the same level until Tuesday morning, when worse than expected German Ifo Business Climate raised some questions about the prospects of the Eurozone and redirected some capital towards the other currencies, greenback including. However, recovery was rather short lived as S&P/CS Composite-20 HPI showed worse than expected results.




That kept the greenback index around the base value until range of (worse than expected) US data came out of Wednesday. That changed the trader’s perception of the greenback which index started to trail lower onwards. Initial and Continuing Jobless Claims and PCE Price Index came out as expected and seemed like it could stabilise the greenback decline. However, personal spending and income data pushed it lower further. At Friday morning greenback saw some profit taking and showed minor, 0.1%, recovery, but this did not manage to ignite any major bullish moves and greenback ended the period 0.44% below the base value.




We are continuing to observe subdued levels of volatility in the market. Elevated volatility in the market and most of the currency pairs is observed in 25% or less of the time, which is substantially below the 30-35% of the time we were used to see until lately. Average volatility in the market and individual currency pairs is below the usual (historical) level and makes up to 80% of it. Highlight of the week was a range of US data releases on Wednesday. U.S. Durable Goods Orders, GDP, PCE Prices, Flash Services PMI and Crude Oil Inventories boosted the EUR/USD volatility till 2.8 on the index value (volatility at 2.8 times higher than usual (historical) level).

Highlights of the latest Marker Research release on GBP.

Full research available here​.



Great Britain’s Pound was one of the best performers in the last 5 trading days. It came virtually at par with Canadian Dollar, lagged 0.15% behind New Zealand Dollar and 0.45% behind Australian Dollar. All of the other currencies ended the period at least 0.01% below the base (opening) value. In the beginning of the period the Great Britain Pound drifted southward, until it hit the 0.32% level below the base on Thursday. That’s when UK Financial Stability Report was released, and BoE Governor’s speech took place and provided a boost to the pound helping it recover till the base value.



We are seeing a slight recovery in the volatility levels in the markets. In all of the cases, except one, elevated volatility in the markets was observed in at least 20% of the time in comparison to the situation which we saw on Monday - half of the currency pairs demonstrated elevated volatility in less than 20% of the time. In addition to that, lower limit of average volatilities in market is now at 80% of the long term (usual) volatility in comparison to 70% on Monday. Also, we can see that in all five trading days of the period there were important events taking place which boosted the trading activity and caused noticeable peaks in volatility. However, we are cautious if this could be a long term state of just a temporary occurrence.



Significance of the Great Britain Pound slightly decreased in the period of analysis from 0.69 to 0.59 and experienced quite a few significant ups and downs in the process. First major dip took place on Wednesday when quite a few worse-than-expected data releases came for the US. It led the gauge to it’s second lowest level in the period—0.34. However, UK Financial Stability Report and BoE Governor’s speech the next day pushed it to the highest level in the period—0.76. Afterwards, we saw it slowly drifting lower and crumbling to the lowest level in the period, 0.28, when the UK Current Account and Final GDP numbers were published on Friday.

Highlights of the latest Marker Research release on EUR.
Full research available here​.



Euro was one of the best performers last week. It came virtually at par with Swiss franc and greenback and was surpassed only by the Great Britain Pound and the Canadian Dollar. All of the other currency indices lagged at least 0.2% behind the Euro. From the very beginning Euro index showed strong commitment to be amongst the best performers in the period. It ended Friday 0.13% above the base adding additional 0.11% on Monday. Tuesday brought a bit of a surprise, despite better than expected data from Eurozone the Euro index trailed lower. It might be that worse than expected German Unemployment Change had impact on it.



Levels of volatility remain rather moderate. Elevated volatility (above the usual (long term value; 1.0 in the index scale) is being observed in 20%, or more, of the time in a clear majority of the cases (market and individual currency pairs). In addition, average volatility is at 80 to 100% of the long term level. Highlight of the period, in terms of volatility, as anticipated, was observed on Thursday. We saw 2 peaks in market volatility (2.4 and 2.7 times higher than the usual level). First one is attributable to the Eurozone Final Services PMI.



Significance of the Euro, measured as an average correlation between various Euro crosses, decreased dramatically in the period of analysis. The gauge started the period at 0.32 and ended it at 0.08. The change in the gauge in the period was pretty much one sided with no major recoveries and with very few recoveries at all. This is rather worrying because it seems that after the ECB’s benchmark rate cut some time ago, the market participants started looking in to other currencies much more closely and indicates that Euro is by far not as important as one would expect it to be.

Highlights of the latest Marker Research release on USD.
Full research available here​.



Tables have turned for the U.S. dollar in the past week, pushing the greenback’s Currency Index to hold above the base value throughout the whole period for the first time since late May. Driven by both favourable U.S. data and weakness of other currencies, the dollar managed to surpass six out of its eight observed peers, losing only to the yen and the kiwi. However, the 0.51% gain over the week was not enough to overpower the long-term tendencies, and the U.S. dollar Currency Index monthly, half-yearly and yearly changes remained negative.



With a long weekend and little to no releases of the U.S. data afterwards, the period was not rich with volatility peaks. All in all, the U.S. dollar pairs were more tranquil than the respective Euro crosses, suggesting greater sensitivity to the foreign news on the single currency’s part. It is further confirmed by the most traded currency pair itself, as it seemed to be more prone to respond to the developments on the greenback’s side of the globe. As for the magnitude of the reactions, the dollar’s Thursday’s rise proved to be the period’s most shocking event for EUR/USD, USD/JPY, USD/CHF, and USD/NZD, while the pairs with the pound, the Aussie, the loony and the Swedish krona were more sharply affected by the developments in the respective regions.



Based on the correlation values the period could be divided into two parts, with the boundary line lying in the midday of the 4th of July. The first part, covering the second half of the previous week, was associated with influential news releases from the U.S. and with that the high level of correlation. The second, on the other hand, saw no significant news from the world’s largest economy and was marked by the steadily low greenback’s significance measure.

Quarterly Report: Q3 of 2014

Full Report

Dear traders,

Instead of getting nearer to a long-awaited robust global economic recovery, it seems we have been moving in the wrong direction after all. In place of positive reinforcing signals that the world’s largest economies are finally feeling the effect of remedy in the form of expansionary monetary policy, we are receiving soft and not-so-soft hints that the end of an easing cycle might not be as close as initially anticipated. In effect, we could be far from normalisation, with structural problems still on our hands.

It thus appears reasonable to take a defensive position at the moment. One of the major arguments in favour of such a stance relates to the shockingly poor US performance during the first quarter. The disappointing news could be in part justified by bad weather conditions and other negative factors, but a contraction of such magnitude cannot be easily ignored, as we are facing a very real threat of recession in the world’s largest economy and all the implications it might entail.

Things look blue on the opposite side of the Atlantic as well. Mario Draghi, having postponed forceful actions until now, has finally fired his cannon. But, judging from the market reaction to the newly implemented measures – or, rather, lack thereof – the markets largely remain unconvinced the effort is sufficient and will be expecting more, as it seems.

One of the few developed countries coping with the headwinds on a more or less satisfactory level is Japan, where Shinzo Abe and his team are making good progress in fighting off deflation and anemic growth, even against the background of a dim outlook for the rest of the developed countries. This is why the Bank of Japan could be the least inclined to act. However, a move from the BOJ should not be ruled out just yet, specifically because of their determination to prompt price growth to a healthy pace.

So all in all it might be a good idea to remain vigilant. Just buckle up and get ready for some turbulence before the risk-on sentiment finally picks up for sure.

Kind regards,
Dukascopy Research Team

Highlights of the latest Marker Research release on EUR.

Full research available here.

The first four days of the period were very calm for the Euro. The Currency Index varied in a narrow range, posting close to 0% changes until Thursday morning, when the Euro started to weaken and finished the day with 0.34% loss from the base value. The top performer was the yen, as its Index remained above the 100 mark throughout the whole period and consequently gained 0.66% over the base value. The pound and the Loonie, in turn, ended up being the worst performers, posting a 0.49% and a 0.41% loss over the period, respectively.

The beginning of the period was marked by general flatness on the market. The Volatility Index ranged from 0.42 to 1.03 until Tuesday, when unexpectedly low UK Industrial and Manufacturing Production data was cause the pound to drop. Right after the releases EUR/GBP and GBP/USD Volatility Indexes jumped to 4.2 and 3.1, respectively, posting the period’s highest volatility readings. The surges also caused the first noticeable rise in the market turbulence.

The Euro significance measure has inherited and magnified its overall feebleness from the previous period. While previously weak composite measure was, on many occasions, due to firm negative and positive components cancelling each other out, during the past week it was a result of all the values sliding closer to zero. Consequently, most mean correlations with EUR/USD, both positive and negative, lost some of their points and became slightly less significant. The only exception was the pair’s bond with EUR/AUD, but the strengthening was not major enough to make the measure cross the 0.3 significance barrier.

June release of Dukascopy Bank Sentiment Index
Full research

 

1. June’s findings of Dukascopy Sentiment Index survey revealed that professors were particularly upbeat about the long term economic prospects. Europe enjoyed the biggest gain of confidence, with the corresponding index surging 0.12 points to the highest level this year. The gauge for the Asia-Pacific region also refreshed this year's high, skyrocketing 0.07 to 0.86. In contrast North America region saw its sentiment index inching slightly higher. All in all, optimism about global economic prospects grew 0.07 points in June to this year's high of 0.78.
2. While professors share optimistic long term outlook for Europe, in the short-run they lost trust in the region’s economy, as the sentiment index slipped by 0.06 to 0.52, the level last seen in February. This might be due to the fact that the recent data out of Europe points to an uneven economic picture, with the core countries reporting disappointing numbers, while periphery continues to slowly recover. The long-term outlook might be supported by the recent decision of the ECB to enter the unchartered waters by launching negative interest rates. This measure is designed to bolster economic growth in the Euro zone and ensure inflation does not fall further.
3. The recent data showed that the U.S. economy contracted in the first quarter, with GDP coming in at –2.9%, while Canada’s growth also disappointed. Apparently, this negative news weighed on experts short-term outlook, as the corresponding index lost 0.06 points. However, the long-term outlook is still optimistic.
4. While Shizno Abe launches the “third arrow” and China shows signs of a rebound, RBNZ hike interest rates and the Australian growth surprises to the upside. All these have contributed to a gain in the short and long term sentiment indices.

Figure 3 represents the term structure of Dukascopy Bank Sentiment Index (Y-axis) mapped against the 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.
In the coming six months Europe’s economy is projected to expand by 0.33%, the lowest rate this year, on the back of sticky inflation in the Euro area, deterioration in consumer sentiment and business climate, slowdown in manufacturing sectors in the core countries, and high unemployment rate. In order to stimulate the Euro zone’s economy and avoid a Japan-style deflationary spiral, the ECB decided to take unprecedented steps by introducing negative interest rates. The long term forecast hints at a slight growth of around 1.27%. Thus, the recent ECB actions have not still translated into strong optimism about the Euro area economic future.
After striking negative GDP data out of the North America, experts have revised the region’s six-month and three-year growth outlook downwards, expecting a growth rate at 1.43% and 1.93% in the near term and in 2017, respectively.
Meanwhile, optimism concerning Asia–Pacific economic stance spreads around the world, as the gauge of six-month growth rose from 3.20% in May to 3.80% in June, while the region’s economy is expected to grow at 4.13% in 2017.




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).
While the North America and Asia-Pacific are rushing to reach the business peak, Europe is struggling to move up along the business cycle curve towards the expansion phase. As confidence in Asia-Pacific economy continues to increase, the distance to business peak is constantly shortening. In June the number of experts who see the region’s economy reaching the highest point in three-year time increased to 6 up from 3 seen last month.
Meanwhile, North America is lagging behind, as weather-hit first quarter growth surprised to the downside. Nevertheless, 5 professors project the nations’ economy to reach business peak in 2017, compared to one expert in the May poll.



Figure 5 shows the six-month economic outlook for Europe, North America, and Asia-Pacific. The global six-month economic prospects fell slightly by 0.02 to 0.63 in June, as experts have become less optimistic about short term economic prospects in Europe and North America. The figure has been hovering above the 60-mark since September 2013, adding to evidence experts confidence continues to gradually improve.
The European six-month sentiment index declined 0.06 points, as 27% of academic experts feel fairly negative about the region’s economic prospects. However, 40% of the survey participants are neutral, while 33% share a fairly positive outlook.
North America also saw its gauge for economic confidence slipping by 0.06 points in June. The index fell to 0.67, down from 0.73 seen in May amidst negative data on Canada’s and U.S. economic growth in the first quarter. The majority of those surveyed (63%) felt fairly positive, whereas a slight minority (10%) stuck to fairly negative view.
Asia-Pacific, however, was the only region which enjoyed a 0.05 point increase, with the short-term economic sentiment index rising to 0.70 compared to 0.65 recorded last month.



Figure 7 presents the three-year economic outlook for Europe, North America, and Asia-Pacific. The three-year global economic outlook surged 0.07 points to 0.78 from the previous month at 0.71, with the corresponding index rising in each region.
Europe enjoyed the biggest advance among other regions, as the gauge jumped 0.12 points in June and reached the highest level this year at 0.71. 70% of respondents felt positive about the region’s three-year economic prospects, with 50% being fairly positive and 20% – definitely positive.
Meanwhile, the American index rose slightly by 0.03 points, not being able to reach this year's high at 0.80 recorded in January. Nevertheless, the vast majority of professors (80%) feel extremely upbeat, and no one shared a negative outlook.
As Asia Pacific economies continue to gather steam, so does the region’s three-year economic sentiment index, which surged 0.07 point in June up from the May reading of 0.79. This is the first time this year when the index reached 0.86 level, with the uptrend having been sustained since April. 87% of professors shared a positive outlook, with 57% being definitely positive about the Asian-Pacific long term economic prospects.




Figure 9 presents a discrepancy in views on the economic outlook among the local and foreign experts. In June, the local and foreign professors disagree on every region’s economic stance in the short and long term.
Europe saw a slight difference in views both for the 6-month and three-year economic outlook, with European professors being more optimistic than their foreign colleagues.
Meanwhile, experts outside North America do not share that bright economic outlook compared to Americans. The discrepancy in the short term forecasts reaches 0.09 points, while the difference in views becomes even more significant when it comes to the three-year growth prospects.
Slightly different picture can be observed when analyzing professors’ responses concerning the Asia-Pacific region. Unlike the previous report results which showed local professors were more upbeat than their foreign colleagues, June’s poll findings reveal that local experts have become less confident in the region’s six-month and three-year economic outlook, as the discrepancy reached –0.15 points and –0.05 points, respectively.

Highlights of the latest Marker Research release on USD.

Full research available here​.

The picture seems to have turned upside down for the U.S. dollar. While previously the Greenback posted gains against all but two of its observed peers, by the end of the past period it stood outpaced by all the currencies save the pound and the Loonie. The dollar index ended up the third worst performer, with a last minute safe from scoring second provided by its Canadian counterpart’s plunge at the very end of the period. The only constant thing seems to be the long-term index changes — they once again remained negative, losses growing with increasing time frames.

After a rather tranquil beginning of July, Volatility Indexes reverted to their usual levels, and volatility of almost all the currency pairs was elevated for 25-30% of the period. The most noticeable peak of the volatility was reached on Friday, when USD/CAD index jumped to 4.6 mark right after the Canadian unemployment rate and net change in employment both came out disappointing expectations. The second and third most stressful news proved to be the UK industrial and manufacturing production data, whose releases pushed the pound pairs’ Volatility Indexes to their peaks.

The main pulling force behind the dollar significance measure was the outstandingly high correlation between USD/EUR and USD/CHF. As all other components held around their usual values, it is safe to assume that this outburst of significance spoke more of the bond between the single currency and the franc, rather than influence of the Greenback. Even without this component, however, the composite held steadily around the 0.3 level, arguing that the dollar was not the one to drive the market, but, nevertheless, was also not the one to be easily pushed around.