Talking Points:
- July typically brings the second of a two-month summer lull for the US Dollar.
- Gold has fared well mid-year; Brexit vote boosts potential for gains.
- S&P 500 might see reprieve in July, but seasonality trends favor mid-year weakness.
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. For July, as we have done for all months in 2016, 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, even as the ramifications from Brexit are unclear: the Asian crisis; the US tech bubble; the US housing bubble; the global 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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Forex Seasonality in Euro (via EURUSD)
July is a neutral month for EUR/USD, from a seasonality perspective, due to its inconsistent performance metrics. The pair has lost ground 55% of the time in July over the past 20 years, and its average performance during this time frame was +4-pips per month. Recently, EUR/USD has fallen in July in four out of the past five years.
Forex Seasonality in British Pound (via GBPUSD)
July is a neutral for GBP/USD from a seasonality perspective. The pair has depreciated 55% of the time in July over the past 20 years, and its average performance during this time frame was +36-pips per month. GBP/USD has lost ground in July of each of the past four years.
Forex Seasonality in Japanese Yen (via USDJPY)
July is a neutral month for USD/JPY, from a seasonality perspective, due to its inconsistent performance metrics. The pair has gained ground 60% of the time in July over the past 20 years, yet its average performance during this time frame was -4-pips per month. Negative years have produced greater losses than positive years, on average. USD/JPY has gained ground in two consecutive years.
Forex Seasonality in Australian Dollar (via AUDUSD)
From a seasonality perspective, July is a slightly bearish month for AUD/USD. The pair has depreciated 65% of the time in July over the past 20 years, and its average performance during this time frame was -16-pips per month. Recently, AUD/USD has lost ground in three straight years.
Forex Seasonality in USDOLLAR
From a seasonality perspective, July is a slightly bearish month for the USDOLLAR Index. The aggregate tracker of greenback value has fallen 53% of the time while, on average*, losing -9.6-points per month during that timeframe. Recently, the USDOLLAR Index has gained ground in each of the past two years.
*USDOLLAR Index only has 17-year data from 1995 to 2015.
Forex Seasonality in New Zealand Dollar (via NZDUSD)
July is a slightly bearish month, from a seasonality perspective, for NZD/USD. The pair has depreciated 55% of the time in July over the past 20 years, and its average performance during this time frame is -13-pips per month. In recent years, NZD/USD has slumped in each of the past two years.
Forex Seasonality in Canadian Dollar (via USDCAD)
July is a slightly bullish month for USD/CADfrom a seasonality perspective. The pair has rallied 60% of the time in July over the past 20 years, and its average performance during this time frame is +91-pips per month. Recently, USD/CAD has gained ground in the past two years.
Forex Seasonality in Swiss Franc (via USDCHF)
From a seasonality perspective, July is a neutral month for USD/CHF, due to its directionless performance metrics. The pair has gained ground 55% of the time in July over the past 20 years, and its average performance during this time frame was -46-pips per month. Recently, USD/CHF has gained in July in three of the past four years.
Forex Seasonality in S&P 500
July is a neutral month for the S&P 500, from a seasonality perspective, due to its mixed performance metrics. The index has gained ground only 45% of the time in July, and gains have averaged a mere +2.5-points over the past 20 years. Recently, the S&P 500 gained in three of the past four years and five of the past seven overall.
Forex Seasonality in Gold
From a seasonality perspective, July is neutral month for Gold, due to its mixed performance metrics. The precious metal has depreciated 60% of the time in July over the past 20 years, yet its average performance during this time frame was +$2.77/oz per month. Bullion has lost ground in each of the past two years, with the losses accumulated in 2015 adding up to the worst July during the measurement period.. Gold’s performance metrics indicate a high degree of disparity, particularly since the GFC.
Read more: As Brexit-Borne Contagion Spreads, Falling Yields Boost JPY and Gold
--- Written by Christopher Vecchio, Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
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