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May Seasonality Sees Best Month of Year for USD After April’s Showers

DailyFX.com -

Talking Points:

- May marks the best month of the year for the US Dollar after the seasonally worst month.

- The commodity currencies have typically rallied slumped during May .

- May is the final of four consecutive months of gains for the S&P 500.

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 distr i bution list.

How quickly the tune has changed for the US Dollar. Between July 2014 and January 2016, the USDOLLAR Index did not post two consecutive months of declines. The uptrend has been checked hard after hitting new all-time highs in January, losing ground for three straight months, an occurrence unseen in two years (the USDOLLAR Index depreciated three months in a row from February to April 2014). Needless to say, the greenback's had a stormy few months.

There may be some sunshine coming through the clouds: after the seasonally worst month of the year in April, May has historically been the best month of the year for the USDOLLAR Index. Price action at the start of the month has been supportive of a potential bottom forming in various USD-pairs, with daily key reversals in AUD/USD, GBP/USD, NZD/USD, and USD/CAD appearing within the first two days of the month.

The seeds for a new US Dollar bull trend to blossom have been planted, with the seasonality backdrop and the technical picture aligning in tandem right away. Unfortunately for traders, this means that the last piece of the puzzle is what the Federal Reserve thinks about incoming US economic data (which seems to be a moving target).

For May, as we did in April, 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: 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...


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