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.
The Euro continue to remain under heavy selling pressure which was accelerated by the Euro-Zone CPI estimate slowing to 1.6% from 2.1% on the back of falling energy prices and waning demand. The Euro dropped nearly 300 bps falling below 1.3400 for the first time since December 15th.
A rebound in risk appetite has thrown many, former ranges into disarray. However, the AUDCAD congestion we have pointed out will both benefit from a sustained rise in yield demand and even a tumble back into risk aversion.
Currency trading markets have started the New Year with a bang, as the US Dollar has already carved out major moves against the Euro and other key counterparts. The sudden jump in volatility has largely benefited our Breakout and Momentum-based trading signals, as our strategies have largely bought into US Dollar strength. Further breakouts and extended momentum would easily favor further gains in said currency trading strategies, and a busy week of economic event risk may make for similarly eventful forex moves in the days ahead. Our favored 1-week volatility measure already shows that traders expect major moves in the week ahead, and we will position ourselves accordingly.
The ISM Non-Manufacturing report is expected to show a slight decline to 37.0 from 37.3 in November. The slow holiday season and declining demand from abroad may lead to a greater than anticipated from in the service industry gauge.