Talking Points:
- In January, it’s typical to see the US Dollar rally versus the Euro and the Swiss Franc.
- The US Dollar’s best month of the year is January.
- Gold’s recent performances in January have been strong in recent years amid exceptional weakness in US equity markets.
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.
The beginning of the month warrants a review of the seasonal patterns that have influenced forex markets over the past several years. For January, as we did for all months in 2016, we expanded our focus on the period of 1997 to 2016 in recognition of the evolving relationship between economic data, central banks, and financial markets.
The longer observation period captures several crisis events/periods that traders may find analogous to events unfolding today, even as the ramifications from Brexit are unclear: the Asian crisis; the US tech bubble; the US housing bubble; the global commodity bubble; and previous rate hiking and rate cutting cycles, from the major central banks, during times normal (pre-2008) or extraordinary (post-2008). By increasing the sample size to 20 years, we believe the statistical stability of the estimates will have increased relative to utilizing a shorter time-frame/smaller sample size.
Forex Seasonality in Euro (via EURUSD)
January is a bearish month for EUR/USD, from a seasonality perspective, due to its consistent performance metrics. The pair has depreciated 70% of the time in January over the past 20-years, and its average performance during this time frame was -194-pips per month. EUR/USD has lost ground in three straight years.
Forex Seasonality in British Pound (via GBPUSD)
January is a bearish month for GBP/USD, from a seasonality perspective, due to its consistent performance metrics. The pair has depreciated 65% of the time in January over the past 20-years, and its average performance during this time frame was -112-pips per month. GBP/USD has lost ground in four straight years.
Forex Seasonality in Japanese Yen (via USDJPY)
January is a slightly bullish month for USD/JPY, from a seasonality perspective. The pair has rallied 55% of the time in January over the past 20-years, yet its average performance during this time frame was just +42-pips per month. USD/JPY gained ground in January 2015 after falling in each of the prior two Januarys.
Forex Seasonality in Australian Dollar (via AUDUSD)
January is a bearish month for AUD/USD, from a seasonality perspective, due to its consistent performance metrics. The pair has ralliedonly 40% of the time in January over the past 20-years, and its average performance during this time frame was -40-pips per month. AUD/USD has fallen in each of the past three Januaries.
Forex Seasonality in USDOLLAR
From a seasonality perspective, January is a bullish month for the USDOLLAR Index, its second-best month of the year. The aggregate tracker of greenback value has rallied 65% of the time while, and has, on average*, gained +57-points per month during that timeframe. The USDOLLAR Index has gained ground in four straight Januaries.
*USDOLLAR Index only has 18-year data from 1999 to 2016.
Forex Seasonality in New Zealand Dollar (via NZDUSD)
January is a bearish month, from a seasonality perspective, for NZD/USD. The pair has spent the majority of its time trading lower in January over the past 20 years (55%), and its average performance during this time frame is -63-pips per month. NZD/USD has depreciated each January in the past three years.
Forex Seasonality in Canadian Dollar (via USDCAD)
January is a bullish month for USD/CADfrom a seasonality perspective. The pair has rallied 65% of the time in January over the past 20-years, and its average performance during this time frame is +84-pips per month. Recently, USD/CAD has gained ground in each of the past four years, with its best performance of the past 20-years coming in January 2015.
Forex Seasonality in Swiss Franc (via USDCHF)
From a seasonality perspective, January is a bullish month for USD/CHF, its best month of the year. The pair has appreciated 70% of the time in January over the past 20-years, and its average performance during this time frame was +167-pips per month. Recently, USD/CHF has alternated between gains and losses since 2013.
Forex Seasonality in S&P 500
January is typically a bearish month for the S&P 500, from a seasonality perspective, the second worst month of the year. The index has split time even between gains and losses over the past-20 years, but the month has produced an average performance of -10.58-points. January has produced losses in each of the past three years, with the worst performance over the past 20-years coming last year.
Forex Seasonality in Gold
From a seasonality perspective, January is a bullish month for Gold, its best month of the year. The majority of gains in January started to appear after 2006 when volatility in metals markets started to increase. Overall, Gold has rallied 55% of the time in January over the past 20-years, and its average performance during this time frame was +$21.73/oz per month.
Read more: US Dollar Starts Off the New Year with a Bang
--- Written by Christopher Vecchio, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
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