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September Forex Seasonality Favors USD Weakness, European FX Strength

September Forex Seasonality Favors USD Weakness, European FX Strength

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- Septembertypically the US Dollar retreat in favor of the European currencies.

- Gold’s recent performances in September have skewed the 20-year seasonality trend.

- S&P 500 typically has its second-worst performance of the year in September.

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

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

September Forex Seasonality Favors USD Weakness, European FX Strength

Forex Seasonality in Euro (via EURUSD)

September Forex Seasonality Favors USD Weakness, European FX Strength

From a seasonality perspective, September is a bullish month for EUR/USD. The pair has rallied 55% of the time while, on average, gaining +77-points per month during that timeframe. Over the past 20 years, September has been the second most bullish month of the year. Recently, EUR/USD has lost ground in each of the past two years.

Forex Seasonality in British Pound (via GBPUSD)

September Forex Seasonality Favors USD Weakness, European FX Strength

From a seasonality perspective, September is slightly bullish month for GBP/USD, due to its consistent performance metrics (although not so recently: the pair has depreciated each of the past two years in September). GBP/USD has rallied 65% of the time in September over the past 20 years, yet its average performance during this time frame was only +55-pips per month.

Forex Seasonality in Japanese Yen (via USDJPY)

September Forex Seasonality Favors USD Weakness, European FX Strength

September is a neutral month for USD/JPY, from a seasonality perspective, due to its indecisive performance metrics. The pair has split time evenly between gains and losses in September over the past 20 years, and its average performance during this time frame was only -14-pips per month. Negative years have produced slightly greater losses than positive years have produced gains, on average. USD/JPY declined last year, after posting its best September over the past 20 years in 2014.

Forex Seasonality in Australian Dollar (via AUDUSD)

September Forex Seasonality Favors USD Weakness, European FX Strength

From a seasonality perspective, September is a neutral month for AUD/USD, although volatility typically makes a strong appearance. In fact, the best September for the pair (2010: +765-pips) was followed the next year by the worst September for the pair (2011: -1045-pips) over the past 20 years. Overall, the pair has appreciated 55% of the time and its average performance during this time frame was a mere -5-pips per month. Recently, AUD/USD has lost ground in each of the past two years.

Forex Seasonality in USDOLLAR

September Forex Seasonality Favors USD Weakness, European FX Strength

From a seasonality perspective, September is a bearish month for the USDOLLAR Index. The aggregate tracker of greenback value has rallied 53% of the time while, yet has, on average*, lost -23-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 1999 to 2015.

Forex Seasonality in New Zealand Dollar (via NZDUSD)

September Forex Seasonality Favors USD Weakness, European FX Strength

September is a slightly bullish month, from a seasonality perspective, for NZD/USD. The pair has appreciated 60% of the time in September over the past 20 years, and its average performance during this time frame is +19-pips per month. In recent years, NZD/USD has rallied in three of the past four years.

Forex Seasonality in Canadian Dollar (via USDCAD)

September Forex Seasonality Favors USD Weakness, European FX Strength

September is a bearish month for USD/CADfrom a seasonality perspective. The pair has rallied just 40% of the time in September over the past 20 years, and its average performance during this time frame is -55-pips per month. Recently, USD/CAD has gained ground in each of the past two years.

Forex Seasonality in Swiss Franc (via USDCHF)

September Forex Seasonality Favors USD Weakness, European FX Strength

From a seasonality perspective, September is a bearish month for USD/CHF, due to its consistent performance metrics. The pair has depreciated 65% of the time in September over the past 20 years, and its average performance during this time frame was -86-pips per month. Recently, USD/CHF has gained in September in each of the past two years.

Forex Seasonality in S&P 500

September Forex Seasonality Favors USD Weakness, European FX Strength

September is a slightly bearish month for the S&P 500, from a seasonality perspective, as it constitutes the second-worst month of the year. However, the ninth month of the year has produced inconsistent performance metrics. Even though the index has rallied 55% of the time in September, its losses have been greater than the gains, with the month averaging -7.7-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 slipped in each of the past two years.

Forex Seasonality in Gold

September Forex Seasonality Favors USD Weakness, European FX Strength

From a seasonality perspective, September is neutral month for Gold, due to its recent counter-seasonal performance metrics. From 1996 to 2010, Gold rallied 80% of the time, resulting in an average performance of $22.91/oz per month. However, after losing ground in four of the past five years (2011 to 2015 average performance was -$57.32/oz per month), the 20-year seasonality performance has been dramatically weighed down. Now, overall, Gold has rallied 65% of the time in September over the past 20 years, yet its average performance during this time frame was down to +$2.86/oz per month.

Read more: US Dollar Fate Next Two Weeks Tied to Fed Hike Odds

--- 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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