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Feb 13, 2012 12:52AM GMT
     
 
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January Seasonal Effect Favors Dollar Strength

By   |  Fundamental Reports  |  Jan 06, 2009 12:00AM GMT
 
 

In this article, we argue that there is an interesting seasonal pattern affecting the US dollar’s exchange rate during the month of January. To some extent, the U.S. dollar has a tendency to rise during the month of January, particularly against the Japanese yen. In fact, over the past decade the U.S. dollar rallied against the Japanese yen during 7 out of the last 10 years. It is true that past returns are not indicative of future results. Yet, price patterns do form in the currency market and there are many different ways to incorporate seasonality into your trading.

US Dollar – Japanese Yen ( USD/JPY)

The U.S. dollar appreciated against the Japanese yen in 20 out of the last 29 years, which is roughly 69 percent of the total sample. The seasonal effect was particularly strong during the 1999 to 2003 period. On average, the USD/JPY exchange rate gained 2.28 percent during the positive months and lost 2.72 percent during the negative months.

Euro – US Dollar ( EUR/USD)

We can also find evidence of seasonal effects in the EUR/USD exchange rate. In fact, during the month of January, the euro depreciated against the U.S. dollar 14 out of 22 times, which is roughly 64 percent of the total sample (synthetic euro prices were used prior to January 1999).  The seasonal effect was particularly strong during the 1996 to 2002 period. In addition, the data indicates that the euro lost on average 3.33 percent during the negative months and gained just 2.32 percent during the positive months.

British pound – US Dollar ( GBP/USD)

After considering the EUR/UD seasonality study, the January seasonal effect in the sterling is not surprising since the GBP/USD is highly correlated with the EUR/USD. In fact, during the month of January, the British pound fell against the U.S. dollar, 18 out of the past 29 years, which is roughly 62 percent of the total sample. On average, the GBP/USD gained 2.18 percent during the positive months compared with an average loss of 3.13 percent during the negative months.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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