The “September Effect” on the S&P 500 and broader risky assets has typically led stocks lower on the month, and a continuation in said tendency would likely push the safe-haven US Dollar and Japanese Yen higher through the foreseeable future. Indeed, the month of September is historically the worst month of the year for the S&P. It is interesting to note that the US Dollar Index has likewise historically fallen in September, but a shift in market dynamics suggests that this is less likely in the month ahead.

September Effect in the US S&P 500 Index

Seasonal tendencies point to S&P 500 declines through the month of September. The S&P 500 has fallen through in said month through  11 out of the past 20 years of trading—good for over 10 points on average. Though this may not seem like much, the past 10 years have actually seen the S&P drop over 50 points on four different occasions. We can give no concrete explanation for the clear September underperformance, but it is likewise fairly clear that S&P 500 trading volume picks up substantially as traders return from summer breaks. If the past is any indication of what is to come, traders should be on the lookout for risk sentiment-linked Japanese Yen and US Dollar gains through September.

September Effect in the US Dollar Index

The US Dollar itself has likewise seen a fairly negative seasonal trend through the month of September, but a shift in market dynamics could nonetheless imply that USD risks remain to the topside in the month ahead. The US Dollar Index has actually fallen in September through 15 of the past 21 years—good for a 100 pip average decline. Yet a correlation study shows that the US currency’s correlation to the S&P 500 is now at its most negative in approximately 20 years. That is to say, an S&P decline would likely lead to a US Dollar rally. It is obviously difficult to predict what may occur in a month’s time, but we would argue that the “September effect” in stocks could benefit the US currency in the weeks ahead.

September Effect in the Swiss Franc

The US Dollar/Swiss Franc pair has seen an impressively consistent seasonal trend in the month of September, falling through the month in 17 of the past 21 years. The average decline through that period is over 200 pips and underlines seasonal risks to the currency. It is admittedly unclear why the currency pair has shown such a decisive seasonal trend, but we should be wary of Swiss Franc strength against the US Dollar in the month ahead.

September Effect in the Japanese Yen

The Japanese Yen has likewise shown an impressive tendency to gain against the US Dollar through the month of September. In fact, the US Dollar/Japanese Yen currency pair has fallen in September through 12 of the past 21 years—an average of almost 200 pips. Yet it serves to note that said tendency is heavily weighted towards the late 1980’s and early 1990’s when the USDJPY was in a fairly substantial downtrend. That being said, any downward pressure in the S&P 500 and major global stock markets would likely benefit the Japanese Yen. Viewed from that standpoint, seasonality suggests USDJPY losses are likely.

September Effect in the Canadian Dollar

The Canadian Dollar shows a fairly consistent trend to rally against the US Dollar through the month of September, but the USDCAD trend is less prononced than that of the USDJPY and USDCHF. We suspect that much of this seasonality could be due to the US Dollar’s historical tendency to pullback on said month, and it is arguably less likely that the Canadian dollar will advance for similar reasons.

September Effect in the Australian Dollar

The Australian Dollar does not show an especially strong seasonal trend in the month of September—falling and rising with approximately the same frequency through the past 21 years of trading. Yet if we believe that the S&P 500 will see its typical “September effect”, traders should be wary of downward pressure on risky asset classes.

September Effect in the British Pound

The British Pound has shown a seasonal tendency to rise in the month of September, having rallied in 16 of the past 21 years in said month. The  average gain is deceivingly small, however, due to the clearly outsized 2000+ pip decline seen in 1992. Said occurrence was the infamous George Soros trade that “broke” the Bank of England and skews our seasonality study. With that being said, we believe that GBPUSD risks remain fairly balanced on the month. The risk-sensitive currency could lose if the S&P 500 turns lower in the weeks ahead.

September Effect in the New Zealand Dollar

The New Zealand dollar has shown little consistency or patterns through the month of September, and we expect little seasonal influence on the pair. Of course, S&P 500 declines could easily send the highly risk-sensitive currency lower through the coming month’s trade.

September Effect in the Euro/US Dollar