Does Forex Volatility Really Pick Up in September?

Unless you’ve been living under a rock, then you’ve likely heard of market players talk about how they usually “sell in May and go away.”

What the heck does “Sell in May and Go Away” mean?!

The phrase, used more widely in the equities markets, refers to traders cashing in their high-yielding investments ahead of the summer months (usually June to August).

With traders out on vacations, the months following May usually see significant drops in trading volume. This creates a self-fulfilling prophecy of selling in May followed by months of low volume (and sometimes low volatility) trading, which is why it’s better for most traders to just “go away.”

Does it follow that there’s more volatility in September?

Should we expect to see boosts in both trading volume and volatility now that the summer months have come and gone? The chart below details the performance of the Dollar Index as well as the major currencies against the Greenback for the past five years. I’ve also thrown in readings from the ATR (14) indicator to get a feel of average volatility for the major pairs.

Tendencies of USDX and Major Currencies in September

Tendencies of USDX and Major Currencies in September

Based on the chart above, we can observe a couple of tendencies:

1. Average gains/losses aren’t as big as in May’s numbers

Back in May, we’ve noted that major currencies do tend to lose pips against the lower-yielding Greenback before the summer months. Heck, NZD even has an average loss of 4.13% in the last five years!

In September though, it looks like gains or losses are limited to around 1% to 2% (I’m not counting CHF’s 3.09% average because of a ridiculously strong move in 2011). If currencies do move around, keep in mind that they aren’t likely to move as much as they do in May.

2. European currencies (EUR, GBP, CHF) tend to move in tandem against the Greenback.

In the last five years (no, not the play), the euro, pound, yen, and franc tend to move in tandem against the dollar in September. One possible explanation is that the “sell in May” tendency is more commonly observed in the U.S. and European equities markets where the four currencies are also heavily traded.

3. Volatility for the major pairs in September isn’t much different from August’s usual moves.

In other words, myth busted. As you can see, the Average True Range (ATR) of the major currencies in September are barely unchanged from their usual ATRs in August. Unless there are catalysts that would buck the trend, we aren’t likely to see increased forex trading volatility this month.

Does this mean we’ll see boring forex price action this month?

Not necessarily. Remember that volatility will still depend on the market movers. In 2011, for example, we saw crazy dollar moves when the U.S. dealt with a credit rating downgrade from S&P, QE3 rumors, and a nail-biting debt ceiling deadline.

Then, in 2014 Yellen’s less-dovish-than-expected remarks in the Jackson Hole meeting presented a glaring contrast to the BOE and RBNZ possibly ending their tightening ways. The overall risk-aversion theme ended up boosting the dollar across the board.

Lack of volatility should be the least of your worries given that we have tons of potential catalysts in the next couple of weeks. Today’s NFP report, for starters, could make or break the case for a Fed rate hike this year. Reports from the U.K. could also spark volatility, as better-than-expected readings could support claims that a Brexit ain’t such a bad deal after all.

Last but not the least, the highly-anticipated huddle of major oil producers is scheduled to take place in Algeria this month. Will we finally see concrete agreements to freeze oil output? Or will we see a replay of the last summit?

While September months may not be as volatile as May in the forex scene, it doesn’t mean that you should sit back and extend your vacation plans. In fact, you should start getting back in your trading zone so you’ll be prepared for whatever catalysts that may come in the next few weeks.


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