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May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

Christopher Vecchio, CFA, Senior Strategist

Talking Points:

- In May, it’s typical to see the US Dollar rally; this year, however, the greenback has been weaker than seasonality suggests.

- DXY strength, seasonally, can be attributed to its largest component, the Euro (57.6% of weighting).

- May is a neutral month for US equities, but the worst month of the year for Gold.

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 May, as we did for all of 2016 and thus far in 2017, we have expanded our focus on the period of 1997 to 2016 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.

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

Forex Seasonality in Euro (via EURUSD)

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

May is a bearish month for EUR/USD, from a seasonality perspective. It is the second-worst month of the year for the pair. EUR/USD has declined 60% of the time in May over the past 20-years, and its average performance was -95-pips per month. EUR/USD has lost ground in May each year starting in 2010.

Forex Seasonality in British Pound (via GBPUSD)

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

May is a bearish month for GBP/USD, from a seasonality perspective, due to its consistent performance metrics. The pair has depreciated 75% of the time in May over the past 20-years, and its average performance during this time frame was -92-pips per month. GBP/USD has lost ground in every May since 2010.

Forex Seasonality in Japanese Yen (via USDJPY)

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

April is a neutral month for USD/JPY, from a seasonality perspective, due to its flat performance metrics. The pair has split time equally between gains and losses over the past 20-years, and its average performance during this time frame was a mere -6-pips per month. USD/JPY has appreciated in May in three of the past four years, with its second- and third-best Mays over the past 20-years coming in 2015 and 2016, respectively.

Forex Seasonality in Australian Dollar (via AUDUSD)

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

April is a very bearish month for AUD/USD, from a seasonality perspective, due to its consistent performance metrics long-term: the pair has depreciated 75% of the time over the past 20-years. The pair’s average performance during this time frame was -146-pips per month. AUD/USD has lost ground in two consecutive Mays, and in six of the past eight Mays overall (save for May 2012).

Forex Seasonality in DXY Index

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

From a seasonality perspective, May is a bullish month for the DXY Index. The aggregate tracker of greenback value has appreciated 65% of the time in April over the past 20-years, gaining +2.81-points per month during that timeframe. The DXY Index has rallied in every May since 2010 (largely reflecting the underperformance of the Euro during May over this time period).

Forex Seasonality in New Zealand Dollar (via NZDUSD)

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

May is a very bearish month, from a seasonality perspective, for NZD/USD. The pair has spent the majority of its time trading lower in May over the past 20 years (70%), and its average performance during this time frame was -113-pips per month – the pair’s worst month of the year. NZD/USD has fallen in five straight years.

Forex Seasonality in Canadian Dollar (via USDCAD)

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

May is a neutral month for USD/CAD from a seasonality perspective. The pair has split time evenly between gains and losses in May over the past 20-years, and its average performance during this time frame was -20-pips per month . Recently, USD/CAD has rallied in six of the past seven years (save for May 2014).

Forex Seasonality in Swiss Franc (via USDCHF)

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

From a seasonality perspective, May is a neutral month for USD/CHF, due to its flat performance during the last 20-years. The pair has appreciated 55% of the time in May over the past 20-years, but its average performance during this time frame was only +2-pips per month. Recently, USD/CHF has rallied in each year since 2010 (save for May 2011).

Forex Seasonality in S&P 500

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

May is typically a bullish month for the S&P 500, from a seasonality perspective, but only slightly. The index has spent the majority of its time (60%) gaining ground in May over the past-20 years, but the index has only averaged +2.2-points during May. However, the S&P 500 has gained ground in four straight Mays; ‘sell in May and go away’ seems like a relic of the post-financial crisis years (Mays 2010 to 2012).

Forex Seasonality in Gold

May Forex Seasonality Sees Return of USD Strength versus EUR, GBP, AUD

From a seasonality perspective, May is a bearish month for Gold, due to its consistent performance metrics. Gold has depreciated 45% of the time in May over the past 20-years, and its average performance during this time frame was -$10.69/oz per month. Recently, Gold has lost ground in five of the past six years (save for May 2015).

Read more: USD/JPY’s Rally Holds Little Sway over DXY Index

--- Written by Christopher Vecchio, Senior 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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