Summer Tendencies for Major Currency Pairs

If you’re not a fan of the “Sell in May and go away” adage, then you should at least have an idea on how major currency pairs usually behave during the summer months.

To help you with this, I compiled a chart detailing the performances of seven major currency pairs in June, July, and August for the past 10 years. Positive performances are highlighted green while bearish years are in red columns. Then, at the bottom of each month is the average performance of the currency pair for both bullish and bearish environments.

One look at the chart already reveals three tendencies:

Summer Tendencies

1. There’s no clear direction for EUR/USD and USD/CHF

If you’re hoping to put on a trade and leave it open for the rest of the summer, you could do better than choosing EUR/USD or USD/CHF. Performances of both pairs in June, July, and August are almost exactly mixed with their gains ranging from 1.26% to 2.24% and losses ranging from -0.84% to -3.30%.

One possible reason is that many traders who often trade major pairs like EUR/USD and USD/CHF are most likely out on summer vacations. This usually results to ranging environments that can last for weeks. So if you still feel like trading these pairs over the next couple of months, then strategies on range trades might come in handy.

2. July is a bullish month for the pound and the comdolls

For the past ten years the pound, Aussie, and Loonie have strengthened against the dollar SEVEN times while Kiwi has also gained 6 out of 8 times.

The rise of the oil-related Loonie can be explained by higher gas prices as summer travelers consume more fuel. The U.S., the world’s largest oil consumer, also undergoes a bi-annual gasoline transition wherein a more expensive summer-grade fuel is used. Meanwhile, a quick look at travel blogs reveals that July is one of the busiest months for U.K. tourism. Tourists probably contribute to the pound’s strength as they need British pounds to go to the Buckingham Palace or the Harry Potter Studio Tour.

What boggles my mind is why AUD/USD and NZD/USD would strengthen in July. It’s not due to gold because the yellow metal tends to flat line and even decline on this month. It’s not tourism either, because peak seasons tend to fall in the summer, which is December and January in the Land Down Under‘s case. What do you think? Any ideas on why the Aussie and Kiwi usually go up in July?

3. USD/JPY tends to decline in August

Perhaps the most noticeable tendency in the chart is USD/JPY’s propensity to fall in August. Heck, it had declined by an average of 1.69% in EIGHT of the last ten years! Another interesting point to note is that it had lost consecutively from 2009 to 2012. Will the dollar bears drive for five in 2013?

Before you bet the farm on the tendencies above, you have to remember that they’re just probabilities. They don’t represent future price action in any way and should always be supplemented by your own research. You should take into consideration, for example, that right now the BOJ is implementing Abenomics, the Fed is thinking of tapering its asset purchases, and that the RBA could easily cut rates during these months.

Now here’s a challenge for you. What other tendencies can you spot from the chart above?