January Forex Trading Patterns
Suggest USD Gains

by John Forman

The start of a new year gets a lot of traders' juices flowing, and that translates in to price action.  Over the last several years, the Dollar has been a beneficiary of that enthusiasm.  Since the introduction of the Euro in 1999, January has been a very strong month for the Greenback, as can be seen in the graph below.  It outlines the net number of positive years for a number of currency pairs (up months minus down months), such that a pair which rose 5 times and fell twice would show as +3, as in the case of AUD/JPY.  This is based on the open to close for the month.

USD/JPY
In six of the last seven years, USD/JPY has risen the first month of the year.  In fact, it's only declined for the month twice in the last decade.  On average, it's been up nearly 200 pips since 1999, or about 1.75%.  In terms of intra-month moves, it's even more exciting.  The USD has been at least 2.5 JPY higher at some point in January in eight of the last ten years.

EUR/USD
As in the case of the JPY, the EUR has fallen six out of the seven Januarys since it was launched in 1999.  On average, the drop has been about 200 pips as well, which is about 1.80%.  Four times the decline in EUR/USD has been in excess of 300 pips, over 3%, and every year the market has fallen at least 150 pips from its opening level at some point during the month.

USD/CHF
The CHF has tended to take the biggest beating against the USD to start the year, falling on average about 2.25%, or over 300 pips.  As in the case of USD/JPY and EUR/USD, its been six out of seven years of Dollar gains.  In fact, USD/CHF has only fallen once in the last decade.  Most of the gains for the USD have been 3%-5%.  One was even more than 6%, a whopping 800 pips!

GBP/USD & AUD/USD
Interestingly, the general tendency for a strong USD in January does not extend to GBP/USD or AUD/USD.  Neither pair has been predominantly lower on the month.  In fact, both are pretty neutral.  This explains, to a great degree, why EUR/AUD has been biased to the downside and GBP/CHF biased higher.  The relative weakness is also indicated in EUR/CHF's tendency to rise (five times in seven years).

Trading these tendencies can be as easy has buying the USD and sitting on it until month-end.  For the active trader, however, this probably doesn't do the trick.  Also, there's always the risk of a negative outcome, and even if not, sizeable draw downs are not out of the question.  My personal approach to trading these patterns is to use them as a bias in my shorter-term trading.  I then look for market activity in the direction of the bias, such as breakouts, for low-risk entry points with loads of potential.

Note: The graph and statistics are from Opportunities in Forex Calendar Trading Patterns.

Keywords: investment, trading, forex, seasonal, calendar, pattern, currency, foreign exchange

Copyright © 2005 by Anduril, Inc.

John Forman is the Managing Analyst and Chief Trader for Anduril Analytics, and the author of The Essentials of Trading. He is a near 20-year veteran of the markets. John has traded just about everything, has worked as an analyst in the foreign exchange, fixed income, and energy markets, and has published literally dozens of articles on market analysis and trading methods.  He is a contributor to Trading Markets and the former Content Editor for Trade2Win, a trader support web site with over 50,000 members, where he interacted with active traders from across the globe.

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