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 Zone Consumer Price Index headlines the economic calendar in European hours, with expectations calling for inflation to slow to 1.8% in the year to December. Overnight, UK consumer confidence issued the worst print on record, adding to selling pressure on the Pound as it retraced gains against the US Dollar.
The EURUSD plunged 300+pips during the previous trading day as market participants expect the European Central Bank to continue their easing cycle, and the euro will remain on the defensive over the near-term as investors expect the central bank to lower the benchmark interest rate by another 50bp in 2009.
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.