August seasons highlight risks
July was a volatile month in which a bond offering finally spooked the markets in general. Seasonally, August is a time to worry about risky trading, with some of the strongest seasonal trends in the forex market.
In terms of bonds, August maintains that the offer has not ended. It is by far the strongest month for 10-year Treasuries, signaling a further drop in yields from here.
1) Australian dollar blues
August is the weakest month on the calendar for AUD / USD for the past 20 years, averaging 1.17%. Only 6 of the last 20 years have shown positive returns. What is particularly concerning is that there is already a catalyst for decline. covid situation in Australia is out of control and I am more and more sure that they will need a new strategy to deal with it rather than longer or harder blocks, but it will be a tricky road to get there. political situation in Australia is poisonous right now.
2) Soggy cable
July was characterized by good weather in Great Britain, but there are clouds on the currency horizon. August is the weakest month for cable in the last two decades, with an average drop of 0.99%. Unlike Australia, the United Kingdom has had a lot of good news about covid with the surprising change of direction in the trajectory of the cases. news has been so good lately that there is talk of two rate hikes in 2022. If you’re a bear here, you might be wondering if the cart is ahead of the horse. At the same time, this trade has been showing very high beta for stocks and risk trades lately, so keep that in mind.
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3) Yen in recovery
Given the scant indications on risk trading in general, this should come as no surprise. average August decline in USD / JPY over the last 20 years is 1.06% and is twice that of AUD / JPY (above) and NZD / JPY. market can already see the potential catalysts for an aggressive move from Jackson Hole or an increase in covid cases at stake. Or it could be as simple as a further reduction in returns.
In general, there is a clear picture of risk aversion. It could simply be a matter of marginal stock sales as market participants head off on a well-deserved vacation. Consider doing the same or consider buying the sauce when it arrives.
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