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.
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The markets are filling out after the year-end lull; and the impact on volatility and price action has been clear. However, as traders return so do the market’s major trends. From a fundamental and technical perspective, AUDNZD has a natural hedge on both fronts.
Is risk appetite returning for good; and has the dollar flipped from a safe haven to a lightening rod for speculative returns? Today's highly volatility markets would suggest this; but fundamentals don't meet such sentiment.
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.