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August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

2016-08-02 16:00:00
Christopher Vecchio, CFA, Senior Strategist
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Talking Points:

- August typically sees a rebound mid-summer for the US Dollar.

- Gold has done well in August; current US Dollar weakness, market volatility reinforce trend.

- S&P 500 typically has worst performance of year in August.

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 August, 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.

See last month’s seasonality report, “July Forex Seasonality Sees Softer US Dollar, but Brexit is a Major Wrinkle.”

Learn how proper risk management can impact your trading results with the “Traits of Successful Traders” guide.

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

Forex Seasonality in Euro (via EURUSD)

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

August is a neutral month for EUR/USD, from a seasonality perspective, due to its inconsistent performance metrics. The pair has traded time equally between gains and losses in August over the past 20 years, and its average performance during this time frame was -45-pips per month. Recently, EUR/USD has fallen in August in four out of the past six years.

Forex Seasonality in British Pound (via GBPUSD)

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

August is a bearish for GBP/USD from a seasonality perspective. The pair has depreciated 65% of the time in August over the past 20 years, and its average performance during this time frame was -136-pips per month. GBP/USD has lost ground in August of each of the past two years and seven of the past nine overall (gains in 2012 and 2013).

Forex Seasonality in Japanese Yen (via USDJPY)

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

August is a bearish month for USD/JPY, from a seasonality perspective, due to its consistently negative performance metrics. The pair has lost ground 60% of the time in August over the past 20 years, and its average performance during this time frame was -138-pips per month. Negative years have produced greater losses than positive years have produced gains, on average. USD/JPY declined last year for the first time since 2011.

Forex Seasonality in Australian Dollar (via AUDUSD)

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

From a seasonality perspective, August is a bearish month for AUD/USD. The pair has depreciated 70% of the time in August over the past 20 years, and its average performance during this time frame was -111-pips per month. Recently, AUD/USD has lost ground in five of the past six years.

Forex Seasonality in USDOLLAR

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

From a seasonality perspective, August is a slightly bullish month for the USDOLLAR Index. The aggregate tracker of greenback value has rallied 53% of the time while, on average*, gaining +32-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)

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

August is a bearish month, from a seasonality perspective, for NZD/USD. The pair has depreciated 65% of the time in August over the past 20 years, and its average performance during this time frame is -79-pips per month. In recent years, NZD/USD has fallen in each of the past six years.

Forex Seasonality in Canadian Dollar (via USDCAD)

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

August is a slightly bullish month for USD/CADfrom a seasonality perspective. The pair has rallied just 45% of the time in August over the past 20 years, but its average performance during this time frame is +18-pips per month. Recently, USD/CAD has gained ground in two of the past three years, and six of the eight years since the global financial crisis.

Forex Seasonality in Swiss Franc (via USDCHF)

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

From a seasonality perspective, August is a neutral month for USD/CHF, due to its directionless performance metrics. The pair has gained ground 55% of the time in August over the past 20 years, and its average performance during this time frame was -22-pips per month. Recently, USD/CHF has gained in August in each of the past three years.

Forex Seasonality in S&P 500

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

August is a bearish month for the S&P 500, from a seasonality perspective, as it constitutes the worst month of the year. Even though the index has only fallen 45% of the time in August, its losses have been significantly greater than the gains, averaging -15.5-points over the last 20 years. In other words, positive months tend to produce small gains, and negative months tend to produce large losses. Recently, the S&P 500 has alternated between gains and losses since 2010, but last year produced the second worst August at any point in the past 20 years.

Forex Seasonality in Gold

August Seasonality Sees Worst Month of Year for S&P 500, Rebound in USD

From a seasonality perspective, August is bullish month for Gold, due to its recent consistent performance metrics. The precious metal has rallied 65% of the time in August over the past 20 years, yet its average performance during this time frame was +$21.04/oz per month. Bullion has gained ground in every year since 2010.

Read more:USDOLLAR Losing Traction as JPY Rallies on Stimulus Letdown

--- Written by Christopher Vecchio, Currency Strategist

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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