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July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

2014-07-01 17:00:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- July continues stretch of four out of five months seeing weakness for US Dollar, the past 5 years.

- Commodity currencies look to outperform – July has been strong for AUD, CAD, NZD.

- Precious metals best two months of the year are July and August in QE era.

See the full rundown of seasonal patterns broken down by currency pairs below, and to receive reports from this analyst, sign up for Christopher’s distribution list.

The beginning of the month warrants a review of the seasonal patterns that have influenced forex markets over the past several years. In our previous study, we decided to once again focus only on recent performance during the QE era of central bank policies (2009-present), and it revealed the market’s bias for a weaker US Dollar in June across the board. The trend held: the US Dollar was the worst performing major currency last month.

As a result of the improved accuracy of the 5-year seasonal studies for April, May, and June versus the 20-year seasonal studies conducted for February and March, we’ve once again decided to focus on the period since 2009. The small sample size is not ideal, and we recognize that there is increased statistical stability with using longer time periods. However, because of the specific uniqueness of the past 5 years relative to any other time period in market history – the era of quantitative easing – we’ve elected to attempt to increase the stability of the estimates with the shorter time period.

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

In the QE era (which appears to be winding down now that the Federal Reserve has cut QE3 to $35B/month), July has proven to be another downtrodden month for the greenback. For your consideration, July continues a stretch in which the US Dollar has lost ground in four of the five next months (weakness seen from June through October, with August barely positive). July sees the US Dollar down against all of its major counterparts.

Forex Seasonality in the Euro

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

Seasonality tends to favor a stronger Euro in July. Historically, volatility has expanded to exceed June’s range. The seasonal outlook is bullish EURUSD.

Forex Seasonality in the British Pound

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

Seasonality tends to favor a stronger British Pound. In 2013 and 2012 the British Pound deviated from strong gains against the US Dollar, but the losses were minimal. The seasonal outlook remains bullish.

Forex Seasonality in the Japanese Yen

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

Seasonal outlook leans bullish for Japanese Yen (Weaker USD/JPY). Although the gains in the Japanese Yen have been slowing, the single currency continues to appreciate modestly against the US Dollar in July.

Forex Seasonality in the Australian Dollar

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

Seasonality favors a stronger Australian Dollar in April. Aside from 2013, the single-currency has appreciated modestly agains the US Dollar. The seasonal outlook is bullish AUDUSD.

Forex Seasonality in the USDOLLAR

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

As an amalgamation of the Australian Dollar, British Pound, Euro, and Japanese Yen, the USDOLLAR Index serves as a proxy for the US Dollar more broadly. Historically, the US Dollar tends to July. Albeit the losses are minimal the seasonal outlook is bearish.

Forex Seasonality in the New Zealand Dollar

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

Seasonality favors a stronger New Zealand Dollar in July. The single currency has shown a tendency to appreciate modestly against the US Dollar in July – with 2012 being the only year it had a smaller gain in comparison to prior years. Seasonal outlook is bullish.

Forex Seasonality in the Canadian Dollar

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

Seasonality tends to favor a stronger Canadian Dollar (weaker USDCAD) in May. Gains in the Canadian dollar vs the US dollar have been picking up over the past three years. The seasonal outlook is a weaker USDCAD.

Forex Seasonality in the Swiss Franc

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

Seasonality favors a weaker USDCHF in July. The Swiss Franc showed a small deviation in its tendency in 2012, but reverted back to seasonaility behavior in 2013. The seasonal outlook is bearish USDCHF.

Seasonality in the US S&P 500 Index

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

The S&P has shown a tendency to advance in July and show increased volatiltiy. The seasonal outlook is bullish.

Seasonality in Gold (XAUUSD)

July Forex Seasonality Foresees More Dollar Weakness versus Aussie, Pound

Gold has shown a stronger tendency to advance in July. Notably, the moderate gains occurred only twice in the prior five years. Seasonal outlook is neutral.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, please fill out this form

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