A seasonal second wind for the USD?

A seasonal second wind for the USD?

In this article we look at a couple of key potential catalysts that will shape the tactical view on the US dollar at a time when the USD bull market is looking very tired.

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The chart in question appeared in the latest edition of the Weekly Macro Themes report as part of a broader discussion on the tactical outlook for the US Dollar Index.
The chart: historical averages show an apparent tendency for the US dollar to get its second wind around this time of the year…

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The seasonal tendency for the US dollar to rally in the early part of the 4th quarter is a curious phenomenon and mirrors that of the S&P500 - as noted in the latest Weekly S&P500 #ChartStorm.  A couple of potential reasons are that it mirrors the macro-seasonality trends e.g. the economic surprise index for America also tends to get a boost in the second half of the year, likewise investors sentiment.  My speculations would include: foreign buying of US stocks, Fed meetings in that time, the tendency for earnings and economics reports to look forward to conditions in the new year, to name a few.
Anyway, as I have previously remarked, seasonality is only one factor and it can and does fail to work at times.  So it is best used as a confirming indicator alongside other signals and factors.
In that respect, my analysis shows the US dollar index as oversold, with extreme oversold signal on market breadth and sentiment (i.e. speculative futures positioning, both aggregate and DXY specific), valuations have become slightly cheaper, and considerable yield support remains.  While this curious seasonal pattern might be one catalyst, another potential catalyst is the commencement of the Fed's quantitative tightening or "balance sheet normalization" plans - scheduled to start this month.  So maybe it is the season for some tactical USD strength.

This article originally appeared as a submission at See It Market

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Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.
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