Which Currency Pairs Perform the Worst in the Month of July?

Last updated 6/30/2009 3:33 PM ET (GMT -5) 11 Comments

Kathy Lien

Director of Currency Research, GFT

July is a very unique month in the currency market because not only do we have strong cases of Seasonality, but it also happens to be the worst performing month for certain currencies. Over the past 10 years, the Canadian, Australian and New Zealand dollars have seen their steepest slides in the month of July. In addition, we have seen the U.S. dollar outperform the Canadian and New Zealand dollars 8 out of the past 10 years during this month. Although the Seasonality is not as strong, the Australian dollar has also underperformed the greenback 7 out of the past 10 years. Seasonality can be attributed to many different reasons, but July marks the peak of the summer travel season and since Canada is the number one tourist generating country for the United States, the performance of the dollar could reflect travel trends. However, that alone may not explain the price pattern as all 3 commodity currencies have a tendency to sell off in July. Technical Analysis is based on the idea that price patterns repeat themselves and seasonality is rooted in this very same concept. Seasonality is defined as a pattern that occurs at given times within the calendar and believe it or not, there are quite a number of cases of seasonality in the currency market.

The first set of charts illustrates the performance of USD/CAD, AUD/USD and NZD/USD in July. As you can see, USD/CAD has rallied 8 out of the past 10 years. In fact, in the 2 years that it failed to rise (2004 and 2005), USD/CAD basically ended the year unchanged. There were wilder swings in the NZD/USD but July still marked weakness for the currency pair 8 out of the past 10 years. The AUD/USD fell 7 out of the past 10 years but 2 out of the 3 years that it rose, the appreciation of 0.5 percent was negligible.

Not only do the commodity currencies have a Seasonal Pattern in July, but it is also the most bearish month for those currencies. The following charts illustrate the 10 year average performance of USD/CAD, AUD/USD and the NZD/USD across the year. As you can see, USD/CAD had it strongest average performance in July while the AUD/USD and NZD/USD had their weakest.

Trading Seasonality Seasonality does not apply 100 percent of the time, so the best way to incorporate it into your FX trading is to be simply mindful of it. For example, it may be better to look for opportunities to buy USD/CAD in the month of July than to sell it and opportunities to sell the AUD/USD and NZD/USD than to buy it. Seasonal trades do not always duplicate themselves, which is why trading seasonality blindly by selling at the beginning of the month and buying it back at the end of the month may not always be the best thing to do, but what seasonality does teach us is where the probabilities are skewed.

Comments (11)

HT

June 30, 2009 at 04:37 PM ET

Thank you Kathy,
Very interesting indeed!

fay

June 30, 2009 at 06:04 PM ET

Thank you Kathy
I wished I have a crystal ball to know how soon the USD/AUD will strengthen to buy AUD....

rmsuleman

June 30, 2009 at 08:34 PM ET

Kathy, can you let me know your source of data please? Are you getting the data from GFT / Bloomberg or something else? I remember doing a similar study using data from BBG but my figures didn't match. Thank you!

Raheem

klien

July 01, 2009 at 08:38 AM ET

I use the data from GFT's DealBook platform

PLAYJT

June 30, 2009 at 09:49 PM ET

Kathy,

With continued strong PMI numbers out of China, How do you think the currency's will breakout in July?

Jonathan

klien

July 01, 2009 at 08:39 AM ET

Stronger numbers for China is positive for risk and in line with my belief that the trend for the U.S. dollar is lower

PLAYJT

July 01, 2009 at 09:06 AM ET

Kathy,

Thanks..

How do you see the currencies moving in the next 2 days, and do u expect a dollar strength on Friday just before the weekend.

Jonathan

Fermont

July 01, 2009 at 07:02 AM ET

Kathy,

Does the Euro also have this type of Seasonality (any month)? :O)

klien

July 01, 2009 at 08:39 AM ET

Unfortunately No. Otherwise it would be on my list =)

Fermont

July 02, 2009 at 04:33 PM ET

Okedoke

Thanks

Yaakub

July 02, 2009 at 04:39 AM ET

Hi Kathy,

Can you please do some recommendation on what will happen to Pound weakness by fundamentals issue on this July month?

Thank you

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.