Some August Seasonals

Consolidation in major indices remain the name of the game, while USD is mixed against the major currencies. Silver, gold and the Aussie are the strongest and JPY, Aussie and kiwi are the weakest. (see the chart below for the July performance of major FX and metals vs USD). The dollar continued its slump Thursday but nearby extremes in FX and other markets can't be ignored. Thursday's Premium trade wasted little time to enter +140-pip gain and is in progress.  Wishing you a Eid Adha Mubarak and best of blessing, peace and prosperity. 

US GDP fell a record 32.9% on an annualized basis in Q2 but as we warned yesterday, that was slightly better than the 34.5% consensus. Initial jobless claims were close to the consensus but remain stubbornly high at 1434K. Continuing claims also missed the 16.2m consensus with a rise to 17.0m. That comes with emergency unemployment benefits set to run out today.

Congress may be shifting towards a short-term extension of those benefits and that's something to watch in the day ahead.

Another thing to watch is the turn of the calendar. August is a poor month for risk trades historically (meaning indices usually selloff); it's the weakest month over the past decade for the S&P 500 and Nikkei. It's also a strong one for bonds (that's negative for yields). US 5-year rates hit a record low Thursday and 10s are now flirting with the April low. It's held a number of times since the pandemic and a break below 0.54% would pave the way to return to the March sell-everything low of 0.30%.

With the weak risk averse tone, it's no surprise that August is a negative month for the commodity currencies. It's the softest for AUD/USD and NZD/USD second-softest for the loonie. The Australian dollar has easily been the best performer since mid-March, up more than 17%. Be wary of a pause or worse.

Another strong seasonal trend is in sterling where it's the second-weakest month in GBP/USD and the strongest month for EUR/GBP. Cable has been on a sparking run to 1.31 but there is some resistance at the 1.32 and that will be a tough test after the one-way trip from 1.25.