The US dollar enters May with a supportive seasonal backdrop, historically delivering positive returns more often than not. However, this is not a one-way trade. May also carries the highest volatility of any month, with wide ranges and frequent reversals.
That leaves traders balancing a bullish seasonal bias against a macro backdrop still shaped by geopolitical tensions and persistent inflation risks. Elevated oil prices and a hawkish Fed narrative could help underpin the dollar, although any easing in Middle East tensions may quickly trigger bouts of risk-on and weigh on USD.
In short, May may favour USD strength—but traders should be prepared for a choppier ride than the headline seasonality suggests.
View related analysis:
- US Dollar Outlook: Bearish April Seasonality Meets Middle East Wildcard
- US Dollar, Yields Rally Post-Fed as USD/JPY Tests Resistance
- FX Futures Positioning: US Dollar, EUR, JPY, CAD | COT report
- US Dollar Outlook: Peak War Uncertainty Weighs on USD, USD/CHF Eyes Breakdown
Bullish May Seasonality Supports USD Amid Elevated Volatility
US Dollar Holds Up Better Than April Seasonality Suggests
It is the final day of April and the US dollar index is down -0.9% at the time of writing, which is not bad when you consider April has historically been one of the more bearish months of the year for the USD. What came as more of a surprise to me is that is fell at all, given the geopolitical tailwind behind it, blowing in from the Middle East. But with peak war in the rear view mirror, bears were able to regain control.
The average decline for April has been -2% since 2000, which coincidentally is near the dollar’s lowest point of the month. Perhaps the algos were tuned to my prior seasonality article.
Inflationary Forces to Align the Dollar with Bullish Seasonality?
The question now is whether seasonality will continue to hold in May. It arguably has a better chance of doing so, unless tensions with Iran flare up again. That seems unlikely for now, with reports suggesting President Trump is opting to maintain restrictions on Iran’s exports, knowing the Strait of Hormuz will likely remain closed and keep oil prices elevated.
In turn, this could sustain inflationary pressures, prolonging second-round effects and potentially reinforcing a more hawkish Fed policy stance.
US Dollar Index monthly seasonality chart showing May with a 0.51% average return, 2.5% average positive return (highest of the year), and -2.2% average negative return (most bearish), highlighting its high volatility profile.
Source: ICE, LSEG
Seasonality Patterns for the US Dollar in May (Since 2000)
- Median return of 0.51% and average return of 0.47%
- The close alignment between median and average (~0.5%) suggests a relatively robust dataset
- The average positive return of 2.5% is the highest of the year
- However, the average negative return of -2.2% is also the most bearish
- A 56% win rate, alongside a higher positive average of 2.5%, may carry extra weight for bulls
- The monthly high-to-low range of 3.9% makes May the most volatile month of the year
Ultimately, May tends to deliver a positive outcome 56% of the time, with the strongest average positive return (2.5%) and an overall average of around 0.5%. However, given this is paired with the highest volatility (3.9%), traders may need to brace for two-way price action.
Source: ICE, LSEG
US Dollar Index (DXY) Technical Analysis
Seasonality Ranges and Key Levels for May
I have added hypothetical ranges for May based on the average, positive, and negative monthly returns for the US dollar index from the seasonality charts above. These percentage ranges are based on the current price ahead of the European and US open, so some wriggle room should be allowed for the final trading day of the month.
However, this suggests that an average positive month would likely see the US dollar index break above the 101 handle, invalidating my assumption that March 31 marked a significant top (wave C). Conversely, an average negative month would see the index close closer to the 96 handle than 97.
From a price action perspective, the US dollar index is on track to close the month with a three-week bullish reversal pattern (morning star). This points to a more constructive near-term outlook, with traders potentially seeking to buy dips.
USD Rally to Remain Capped?
However, I remain cautiously optimistic that geopolitical developments could shift the narrative. Should the US move to ease restrictions on Iran’s exports and the Strait of Hormuz reopen, it could relieve upward pressure on oil prices and allow dollar bears to regain control. In that scenario, the rally may stall ahead of 100 or fail to invalidate the wave C high near 100.50.
While prices remain below 100.50, I will maintain the view that this level marks a significant top (wave C). From there, the US dollar could see momentum realign with the broader bearish move from the 2025 high, as part of a larger downtrend.
Source: ICE TradingView
FX Majors Seasonality Table
The matrix shows average returns for forex majors over the past 26 years for each month. I will focus on May’s average returns given the context of this article.
- EUR/USD, AUD/USD and NZD/USD have all generated an average loss of -0.7% in May.
- This is notable given the euro accounts for around two-thirds of the US dollar index, which in turn hints at a broader commodity-linked theme in May that the Australian and New Zealand dollars track.
- The British pound is close behind, with GBP/USD averaging a loss of -0.6%.
- The Swiss franc and Japanese yen tend to hold up better against the US dollar than the commodity currencies and euro, with USD/CHF rising 0.3% and USD/JPY 0.2% on average.
- Yet it is the Canadian dollar that stands out, with USD/CAD averaging a return of 0% for May, suggesting relative resilience alongside the US dollar.
Source: ICE TradingView
Seasonality a Guide, Not a Guarantee
It should be remembered that seasonality simply looks at average historical returns. While it can be useful to highlight patterns, it can also be easily overshadowed by more pressing themes, whether geopolitical or macro-driven.
Given tensions in the Middle East are far from resolved and inflationary pressures persist, this likely gives the US dollar a decent chance of following its seasonal tendency to rise. But as we saw in early April, the dollar can quickly reverse course and move lower during bouts of risk-on, if traders think Middle East tensions will recede.
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-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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