FX Viewpoint – Seasonality in December?

In our Q4 version of Oct 5, we concluded that 15-20 years ago, it was a good bet to short the DOLLAR. More recently, we have seen strength.

We continued Q4 seasonality this year could come second to the potentially big drivers of COVID vaccine hopes, a resilient global economy, the Biden lead and Brexit, but BEARS might want to look at a LONG AUD/USD (but of course the RBA could well cut rates before the year is out). The last 20 years has seen an ave of +0.9% during Q4 and current standing is +2.5%.

We added USD BULLS might consider a LONG USD/NOK. An ave win of +1.4% since 2000. A very short NOK market though has rocketed in this risk-on environment and the less said about the -5.0% USD/NOK losses the better!

So far in the month's early exchanges, the USD is mostly slightly lower, from -0.03% AUD through to -0.3% CHF and EUR and -0.4% SEK. Only USD win so far is the tiny +0.1% YEN.

How does the big DOLLAR tend to fare generally in the run-up to year-end? Further, are there any G10s that seem to perform particularly well/badly through Dec?

• In 2019, the USD lost out across the board. See above, from -0.8% YEN through to significant losses of -3.5% CHF, -3.8% AUD and -5.0% NZD and NOK.
• In 2018, the USD put in a mixed performance. Material losses against -1.6% CHF, -2.9% SEK and -3.5% YEN. Largest USD gains of +2.2% NZD, +2.5% CAD and +3.5% AUD.
• In 2017, the USD was a near broad loser, down -0.9% EUR to the likes of -2.4% SEK, -2.6% CAD, -3.2% AUD and -3.9% NZD. The USD only won and tiny vs +0.1% GBP and JPY.
• In 2016, all change and only USD losses were vs -1.4% SEK, with decent USD upside seen vs +1.3% GBP and NOK, +2.1% NZD and JPY and +2.4% AUD.
• Five years ago, it was a mixed affair. The USD was lower vs the likes of -2.4% YEN, -2.8% EUR, -3.4% SEK and -3.8% NZD. The USD was up +1.6% NOK, +2.1% GBP and +3.5% CAD.
  
  
  

• In Dec 2014, see above, the USD closed the year stronger across the board, from +0.4% GBP through to +3.9% AUD, +4.6% SEK and +5.7% NOK.
• In 2013, the USD was mostly a loser, from -0.9% NOK through to -1.5% CHF and -1.7% SEK. The USD was only up vs the +0.1% CAD, +2.1% AUD and +2.7% JPY.
• In 2012, it was a very similar story, the USD largely lower again, from -0.2% CAD through to -2.0% NOK and -2.4% SEK. The USD only won out vs +0.3% AUD and +4.9% the Abe impacted JPY.
• In 2011, light USD losses only vs -0.9% YEN and USD gains everywhere else in G10 land, incl +2.7% CHF, +3.4% NOK and +3.6% EUR.

• Ten years ago, see above, the USD was a loser across the board, from -0.3% GBP to big losses versus -4.7% SEK, -5.1% NZD, -6.7% NOK and AUD and -7.3% CHF.
• In 2009, the USD only lost out vs -0.3% CAD and -1.0% NZD. USD gains elsewhere and biggest ones vs +2.9% CHF, +4.6% EUR and +7.1% JPY.

• In 2008, see above, as the GFC was taking its toll there was mega movement and the USD was mostly softer, incl around -5.5% JPY and NZD, -7.2% AUD, -10.1% EUR and -13.6% the chief safe haven CHF. Only USD win came against +5.1% GBP, as the BOE cut interest rates by 100BPs.
• In 2007, only significant USD downside was made vs -2.0% NOK and largely light gains elsewhere, the +3.5% GBP the highlight.
• In 2006, sole USD loss came against -2.9% NZD, with largest USD gains up against +2.2% CAD and +2.7% YEN.
• For good measure, fifteen years ago, a complete mixed bag. Material USD losses of -1.8% YEN and SEK. Largest USD gains of +0.7% AUD and +2.7% NZD.

In Dec, the DOLLAR tends to be a loser, often a broad one. The havens can do well, with the CHF an occasional big winner. See above, USD/CHF has fallen an ave of -1.3% in the last 15 years. Of course, interesting times for this pair amid talk of a possible 0.9000 SNB line in the sand. We doubt such a notion given the Swiss CB is far more focused on the value of the more significant trade partner EUR/CHF, but it has only dipped below the psych mark four times and very briefly this year so far. A double bottom of 0.8983-84 low in early Nov.

A clear break below could hasten USD/CHF downside and perhaps lead to a fresh wave of broad Dollar sales before the year is out.

USD/CHF - IGM Techs' view

• Deteriorated within the current .8983/.9208 consolidation (6 Nov, 5-3/4yr low and 2 Nov peak) to threaten .8983, before bouncing
• However, studies remain negative and while .9148 (23 Nov high) caps s-term gains, watch for a return towards .8983
• Below signals a downside extension to .8936 (27 Jan 15 low) and only over .9148 offers relief back towards .9208 - which should cap