Summer Season
May 25, 2015
The solstice that kicks off astronomical summer still lies almost a month away, but summer for currency market participants has just begun. In foreign exchange, the year divides into three seasons, not four: 1) before the U.S. Memorial Day holiday, 2) the summer, and 3) what’s left of the calendar year after the Labor Day weekend in early September.
Summertime has unique properties that separate it from the other two seasons. Market participants rotate thorough a revolving door, some return from vacation and others head off for their summer R&R. Oftentimes, market depth, breadth and resilience are not as solid as during the other two seasons. But it would be a mistake to assume that nothing happens of significance during summer. The dollar’s link to gold was severed in summer, and U.S. officials came to define disorderly currency market conditions by the chaotic properties that existed on July 6, 1973. Both world wars began in summer. Iraq invaded Kuwait in August 1990, and a failed coup in the Soviet Union happened one year later. Prior to the launch of the euro, several upheavals in key intra-European currency relationships had their genesis in Summer, and a number of other key currency market reversals happened that season. The Asian debt crisis of 1997-8 began with a Thai baht devaluation on July 1, 1997, and the subprime mortgage loan meltdown surfaced on August 9, 2007.
The cusps between the three foreign exchange trading seasons are good times to take stock of where currencies have moved. Between the starts of the Memorial Day weekends of 2014 and 2015, the dollar advanced 23.7% against the euro, 19.2% versus the yen, 18.0% relative to the Australian dollar, 16.8% vis-a-vis the New Zealand dollar, 13.1% against the Canadian dollar, 8.6% versus sterling and 5.4% against the Swiss franc. In short, the greenback has experienced a stellar twelve months. In last year’s summer currency season, the dollar rose 3.7% against the euro, 2.5% relative to the Swiss franc, and 2.0% vis-a-vis the yen. The dollar also gained 1.4% against sterling but was unchanged on balance against the loonie. Net dollar changes against the Australian dollar (down 1.1%) and New Zealand dollar (up 2.1%) were in opposite directions.
And here’s another oddity to bear in mind. In the five years prior to 2014, that is 2009-2013, the dollar fell on balance in summer against both the euro and yen, although none of those drops exceeded 7.0% in size. Last year, as noted above, broke that string in each case as a year of across-the-board dollar appreciation began. That upturn, moreover, coincided with a pronounced slide in world oil prices. A huge decline in oil prices in 1998 had also occurred at a time when the dollar was well-bid.
Copyright 2015, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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