Summer’s End

September 6, 2010

Unlike the four seasons of nature, the currency market year sub-divides into three parts: winter/spring, summer, and autumn.  In forex, the U.S. Memorial Day and Labor Day holidays are the bookends of summer.  Note, too, that these the three trading seasons have different lengths.  The first period from from New Year’s Day to Memorial Day is about 50% longer than the summer season, and the Labor Day to end-of-year stretch has a duration that approximates the average of the first and second seasons.

The dollar fell across the board in the summer season of 2010 but most sharply against the Swiss franc.  The 12.3% drop against the Swissy was followed by losses of 7.6% against the Australian dollar, 7.3% against the yen, 6.6% versus sterling, 4.8% relative to the kiwi, 4.8% against the euro and and just 1.5% against the Canadian dollar.  These changes are compared below against the dollar’s movements during the previous two seasons. 

USD versus Summer Winter/Spring Autumn 2009
Euro -4.8% +16.7% -0.1%
Yen -7.3% -2.1% +0.1%
Swissy -12.3% +12.0% -2.4%
Sterling -6.6% +11.9% +1.4%
CAD -1.5% +0.6% -3.4%
AUD -7.6% +6.1% -5.3%
NZD -5.8% +6.9% -5.4%

Ten-year Treasury yields fell by 58 basis points in the fourteen weeks that comprised this year’s summer season.  That was even more than the 54-bp decline in the first major segment of 2010.  Such also exceeded declines of 33 basis points in German 10-year bund yields or 11 bps in comparable Japanese JGB’s.  Diminishing interest rate support has been a dollar depressant.

The Dow recovered 3.1% on balance in the summer, offsetting an earlier drop such that it is now a mere 0.2% above its end-2009 level.  U.S. stock prices had recovered extensively from very depressed levels in early March 2009, including a gain in the DOW of 10.5% in the autumn season of last year.  The German Dax has traced a similar pattern to the DOW, climbing 10.6% last autumn, dipping 0.2% in first 21 weeks of 2010 and rising 3.2% in this year’s summer season.  Japan’s Nikkei has performed worse than those two markets, firming only 3.5% in the autumn period of 2009, then dropping by 7.4% in the winter/spring season of 2010 and by a further 6.6% over the summer. 

Since August 25, however, the Nikkei has advanced 5.2%, and ten-year JGB yields have climbed from 0.91% to 1.20%, so a breeze of change seems to be blowing through Japan and bears watching as that economy winds down to its fiscal half-end on September 30th.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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