Talking Points:

- February marks the second month of the strongest quarter of the year for the US Dollar.

- The commodity currencies have typically outperformed during February.

- February marks the start of four consecutive months of gains for the S&P 500.

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.

That was a rough first week of February for the US Dollar. After interest rate markets priced out any rate hikes by the Federal Reserve this year, the greenback slid across the board, with Wednesday, February 3, marking the single-largest one day drop for the ICE Dollar Index in history outside of the 1998 and 2008 crises. Needless to say, markets have proven unsettled with the US Dollar’s prospects, so much so that otherwise bullish longer-term seasonality trends have thus far been ignored.

Yet now that rate hikes by the Fed in 2016 have been priced out, there may be a floor in expectations in place; the US Dollar’s otherwise bullish seasonality trends may prove helpful if a rebound or period of stabilization takes shape through the end of the month, particularly against the European currencies.

For February, we have expanded our focus on the period of 1996 to 2015 in recognition of the evolving relationship between economic data, central banks, and financial markets. The longer observation period captures several crisis events/periods that traders may find analogous to events unfolding today: the Asian crisis; the US tech bubble; the housing bubble; the commodity bubble; and previous rate hiking and rate cutting cycles, from the major central banks,during times normal (pre-2008) or extraordinary (post-2008). By increasing the sample size to 20 years, we believe the statistical stability of the estimates will have increased relative to utilizing a shorter time-frame/smaller sample size.

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February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

Forex Seasonality in Euro (via EURUSD)

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

February is a neutral month for EUR/USD, from a seasonality perspective, due to its inconsistent performance metrics. The pair has appreciated 55% of the time in February over the past 20 years, yet its average performance during this time frame is -18.3-pips per month. Positive years have only produced modest gains, while negative years have produced slightly greater losses. Recently, EUR/USD has fallen in two of the past three years (with its greatest loss in February over the past 20 years coming in 2013), but has gained ground in three of the past five years overall.

Follow live SSI updates for EUR/USD.

Forex Seasonality in British Pound (via GBPUSD)

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

February is a neutral month for GBP/USD, from a seasonality perspective, due to its inconsistent performance metrics. The pair has appreciated 55% of the time in February over the past 20 years, yet its average performance during this time frame is -55.5-pips per month. Positive years have only produced modest gains, while negative years have produced even steeper losses. Recently, GBP/USD has gained ground in two of the past three years and four of the past five years overall.

Follow live SSI updates for GBP/USD.

Forex Seasonality in Japanese Yen (via USDJPY)

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

February is a neutral month for USD/JPY, from a seasonality perspective, due to its inconsistent performance metrics. The pair has appreciated 45% of the time in February over the past 20 years, yet its average performance during this time frame is +58.4-pips per month. Negative years have only produced modest losses, while positive years have produced relatively larger gains. Recently, USD/JPY has gained ground in three of the past four years overall.

Forex Seasonality in Australian Dollar (via AUDUSD)

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

From a seasonality perspective, February is a very bullish month for AUD/USD. The pair has appreciated 70% of the time in February over the past 20 years, and its average performance during this time frame is +54.9-pips per month. Recently, AUD/USD has gained ground in two years in a row, and in eight of the past nine years overall.

Follow live SSI updates for AUD/USD.

Forex Seasonality in USDOLLAR

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

From a seasonality perspective, February is a bullish month for the USDOLLAR Index. The index has appreciated 53% of the time in February over the past 17 years, and its average performance during this time frame is +34.5-points per month. Recently, the USDOLLAR Index has lost ground in two consecutive years and in three out of the past five years overall.

Forex Seasonality in New Zealand Dollar (via NZDUSD)

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

February is a bullish month, from a seasonality perspective, for NZD/USD. The pair has appreciated 60% of the time in February over the past 20 years, and its average performance during this time frame is +21.3-pips per month. Between 2014 and 2015, NZD/USD had its best two years over the past 20 years, and has rallied in three of the past four years overall.

Follow live SSI updates for NZD/USD.

Forex Seasonality in Canadian Dollar (via USDCAD)

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

February is a very bearish month for USD/CAD,from a seasonality perspective. The pair has depreciated 65% of the time in February over the past 20 years, and its average performance during this time frame is -13.3-pips per month. Recently, USD/CAD has lost ground in each of the past two years, in five of the past six years, and in nine of the past 11 years overall.

Follow live SSI updates for USD/CAD.

Forex Seasonality in Swiss Franc (via USDCHF)

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

From a seasonality perspective, February is a neutral month for USD/CHF, due to its directionless performance metrics. The pair has split time evenly rallying and falling in February over the past 20 years, and its average performance during this time frame is slightly positive at +22.4-pips per month. Positive years have produced gains just large enough in magnitude to offset the equally frequent down years. Recently, USD/CHF has appreciated in two of the past three years, but has lost ground in three of the past five years overall.

Forex Seasonality in S&P 500

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

February is a slightly bullish month, from a seasonality perspective, for the S&P 500 due to its short-term performance metrics. Recently, the S&P 500 has rallied in each of the past six years. The index has gained ground 60% of the time in February, yet gains have been rather soft, averaging only +1.96-points over the past 20 years. Considering that it is widely understood that recent gains may have been driven by expansive central bank monetary policy during the post-GFC/Great Recession years, the S&P 500 is perhaps the most interesting instrument to track compared to its seasonality trends as the Fed attempts to normalize policy.

Forex Seasonality in Gold

February Seasonality Gives US Dollar Rebound Hope Next Few Weeks

From a seasonality perspective, February is a bullish month for Gold. The precious metal has appreciated 60% of the time in February over the past 20 years, and its average performance during this time frame is +$4.80/oz per month. Recent years haven’t been kind to Gold, however: its three worst performances over the past 20 years came in 2013, 2015, and 2012, respectively. That said, before Gold’s losses in three of the past four years, Gold did not post a losing February between 2007 and 2011. One outcome that may be observed as well: heightened volatility. Five of Gold’s six largest moves in February over the past 20 years have happened since 2011.

Follow live SSI updates for Gold (XAU/USD).

Read more: EUR/USD Rally May Slow as Markets Reassess ECB, Fed Policies

--- Written by Christopher Vecchio, Currency Strategist

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

Follow him on Twitter at @CVecchioFX

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