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November Forex Seasonality Favors Return of US Dollar Strength

November Forex Seasonality Favors Return of US Dollar Strength

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- In November, the US Dollar typically gains ground at the expense of the European currencies.

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

- The S&P 500 typically loves November - that is, unless a crisis is at hand.

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 November, 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.

Of course, this month, there is an obvious but necessary caveat to mention: the US Presidential elections. Given the dramatic behavior in which the market has behaved around developments late in the election cycle, there is a strong chance that a surprising result on Tuesday could upend the November seasonality forecasts – just as the June 24 Brexit vote proved to be disruptive to seasonality trends in June and July.

November Forex Seasonality Favors Return of US Dollar Strength

Forex Seasonality in Euro (via EURUSD)

November Forex Seasonality Favors Return of US Dollar Strength

November is a bearish month for EUR/USD, from a seasonality perspective, due to its recently consistent performance metrics. The pair has lost ground 55% of the time in November over the past 20 years, and its average performance during this time frame was -61-pips per month. Recently, EUR/USD has fallen in November in two consecutive years and four of the last six overall.

Forex Seasonality in British Pound (via GBPUSD)

November Forex Seasonality Favors Return of US Dollar Strength

From a seasonality perspective, November is very bearish month for GBP/USD, due to its consistent performance metrics. GBP/USD has depreciated 70% of the time in November over the past 20 years, and its average performance during this time frame was a modest -89-pips per month. Cable has traded lower in each of the past two Novembers and its 2013 rally was its first gain since 2006.

Forex Seasonality in Japanese Yen (via USDJPY)

November Forex Seasonality Favors Return of US Dollar Strength

September is a slightly bullish month for USD/JPY, from a seasonality perspective, due to its recently consistent performance metrics. The pair has rallied 55% of the time in November over the past 20 years, and its average performance during this time frame was +107-pips per month. USD/JPY has gained in four years in a row and five of the last six overall.

Forex Seasonality in Australian Dollar (via AUDUSD)

November Forex Seasonality Favors Return of US Dollar Strength

November is a neutral month for AUD/USD, from a seasonality perspective, due to its inconsistent performance metrics. The pair has rallied 55% of the time in November over the past 20 years, yet its average performance during this time frame was -30-pips per month. Coincidentally, AUD/USD has alternated between gains in one year followed by losses in the following two. Gains in Novembers 2009, 2012, and 2015 were preceded by two years of losses.

Forex Seasonality in USDOLLAR

November Forex Seasonality Favors Return of US Dollar Strength

From a seasonality perspective, November is a bullish month for the USDOLLAR Index. The aggregate tracker of greenback value has rallied 59% of the time while, and has, on average*, gained +35-points per month during that timeframe. Recently, the USDOLLAR Index has gained ground in each of the past six years.

*USDOLLAR Index only has 17-year data from 1999 to 2015.

Forex Seasonality in New Zealand Dollar (via NZDUSD)

November Forex Seasonality Favors Return of US Dollar Strength

November is a slightly bearish month, from a seasonality perspective, for NZD/USD. The pair has split time evenly between gains and losses in November over the past 20 years, and its average performance during this time frame is minor -10-pips per month. November is a streaky month for the Kiwi, with the pair having lost ground in eight of the past nine years.

Forex Seasonality in Canadian Dollar (via USDCAD)

November Forex Seasonality Favors Return of US Dollar Strength

November is a bullish month for USD/CADfrom a seasonality perspective. The pair has rallied 65% of the time in November over the past 20 years, and its average performance during this time frame is +57-pips per month. Recently, USD/CAD has gained ground in three consecutive years and in eight of the past ten overall.

Forex Seasonality in Swiss Franc (via USDCHF)

November Forex Seasonality Favors Return of US Dollar Strength

From a seasonality perspective, September is a bullish month for USD/CHF, due to its consistent performance metrics. The pair has appreciated 60% of the time in September over the past 20 years, and its average performance during this time frame was +51-pips per month. Recently, USD/CHF has gained in September in each of the past two years.

Forex Seasonality in S&P 500

November Forex Seasonality Favors Return of US Dollar Strength

November is typically a bullish month for the S&P 500, from a seasonality perspective, no matter how you slice it. The index has rallied 70% of the time in November, over the past 20 years, with the month averaging +16.45-points. Negative performances have been notable, despite limited in occurrence; the tech bubble popping in 2000; and the US housing market bust in 2007; and the global financial crisis in 2008. Similarly, November 2010 and 2011 were clouded by uncertainty pertaining to the Euro-Zone sovereign debt crisis and the US debt ceiling, respectively. In other words: unless there is an unusual threat to global stability, US equities tend to do quite well in November.

Forex Seasonality in Gold

November Forex Seasonality Favors Return of US Dollar Strength

From a seasonality perspective, November is slightly bullish month for Gold, although its two worst losses ever came in two of the past three years. From 1996 to 2011, Gold rallied 69% of the time, resulting in an average performance of $21.93/oz per month. However, after losing ground in each of the past four years (2011 to 2015 average performance was -$39.57/oz per month), the 20-year seasonality performance has been dramatically weighed down. Now, overall, Gold has rallied 55% of the time in November over the past 20 years, yet its average performance during this time frame was down to +$9.64/oz per month.

Read more: November Surprise? Markets Places Bets on US Election Outcome

--- 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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