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January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

By , Currency Analyst
08 January 2014 03:30 GMT

Talking Points:

- US Dollar tends to start off years strong.

- Seasonal factors favor European currency weakness, commodity currency strength.

- S&P 500 going for fourth consecutive positive January.

A new year has begun and that means new funds are put to work in capital markets across the globe. A look at data over the past 20 years reveals that the beginning of the year (January to March) tends to be a bullish time for the US Dollar. However, in two of the past three years, the USDOLLAR Index has lost ground in January.

While seasonality, like any form of analysis, doesn’t guarantee a clear look into the future, it is another useful way to monitor market conditions when establishing trades. Feeling like US stocks have rallied too far, too fast? Seasonal factors tell us that January might not be the ideal time to short the S&P 500.

See the full rundown of seasonal patterns broken down by currency pairs below, and to receive reports from this analyst, sign up for Christopher’s distribution list.

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_season1.jpg, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

Forex Seasonality in the Euro

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_Picture_1.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

January has been the worst month on average over the past 20 years for the Euro, averaging -1.59%. That being said, the EURUSD has rallied each of the past three Januaries (2011-2013). The conflicting nature of the shorter-term and longer-term seasonal factors supports our neutral Euro forecast for early-January.

Forex Seasonality in the British Pound

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_x0000_i1028.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

The GBPUSD has started off the year lower on average the past 20 years, with January seeing a loss of -1.11%. (February isn’t better, which has averaged -1.21% over the same time horizon.) The GBPUSD dropped last January and has fallen four of the past six Januaries. Modest weakness is favored.

Forex Seasonality in the Japanese Yen

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_x0000_i1029.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

The early part of the year tends to be bearish for the Japanese Yen (bullish USDJPY), as gains have occurred in each of the first three months on average over the past 20 years. The best January performance of the last 20 years occurred last year, when the USDJPY rallied by +6.07%. The bigger picture would favor further Japanese Yen weakness.

Forex Seasonality in the Australian Dollar

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_x0000_i1030.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

The Australian Dollar has shown little tendency for a clear pattern, either bullish or bearish, to start the new year. January 2013 barely produced a moved higher (+0.12%); January 2012 was stronger (+4.96%); and three years of weakness preceeded that (-6.79% in 2009; -0.66% in 2010; and -1.22% in 2011).

Forex Seasonality in the USDOLLAR

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_x0000_i1031.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

As an amalgamation of the Australian Dollar, British Pound, Euro, and Japanese Yen, the USDOLLAR Index serves as a proxy for the US Dollar more broadly. Historically, January is the third best month of the year for the USDOLLAR.

Forex Seasonality in the New Zealand Dollar

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_x0000_i1032.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

The New Zealand Dollar has seen little continuity in trend over the past several Januaries (much like the Australian Dollar), and price action in the first few months of the year tends to be inconsequential in NZDUSD. Our seasonality forecast is neutral.

Forex Seasonality in the Canadian Dollar

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_x0000_i1033.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

The USDCAD has gained in five of the past six years, including each of the past three. However, seasonal factors favor modest weakness in January, and a mixed performance in the early part of the year. We view these seasonal factors as neutral.

Forex Seasonality in the Swiss Franc

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_x0000_i1034.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

Seasonality favors a stronger USDCHF in January. Although gains have been rather absent since 2010 (2011: +0.02%), January has produced gains in the USDCHF in 13 of the past 20 years. January is the best month of the year for USDCHF, averaging +1.99% over the past 20 years. January’s price action ‘checks’ that seen in December, which has averaged -1.85%.

Seasonality in the US S&P 500 Index

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_x0000_i1035.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

Has January been the best month of the year for US stocks, on average, over the last 20 years? No, that title goes to March, which has averaged a gain of +15.53 points. January has only been the fifth best month of the year, averaging +7.01 points by comparison. Considering that we’re in the midst of the strongest portion of the year for stocks (October to April) and that the S&P 500 has produced strengthening gains each of the past three years, we view seasonal factors as bullish.

Seasonality in Gold (XAUUSD)

January_Seasonality_Favors_US_Dollar_Gains_versus_Japanese_Yen_Swiss_Franc_body_x0000_i1036.png, January Seasonality Favors US Dollar Gains versus Japanese Yen, Swiss Franc

Historically January has been the third strongest month of the year for Gold, amassing gains of +$14.37 on average since 1993. The past four years gains and losses have alternated in January. We view these seasonal factors as neutral overall.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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08 January 2014 03:30 GMT