8/3/2019 The January Forex Effect, Jan. 8, 2012
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January 8, 2012
Factor Special Update The January Forex Effect
I have covered the January Forex Effectseveral times in recent
weeks, but thisphenomenon can be such a powerful tradingedge that
it demands emphasis wheneverpossible.
The January Forex Effect is the historicaltendency for the U.S.
Dollar to establish atleast a half-year high or low during January
ahigh or low that often becomes the absolute
annual high or low. For example, the annualhigh or low has been
made in USDCHF duringthe first two weeks of January in more than50%
of trading years in the modern era (sincethe IMM came on
board).
From a trading perspective this is a vitallyimportant phenomenon
because it can definerisk. It looks to me as if we already have
aJanuary high in EURUSD, a January low in theU.S. Dollar Index, a
January low in USDCAD,and a January high GBPUSD. Of course it
is
possible that these highs or lows becomemodified before months
end. To the right is atable of January highs and lows dating back
tothe early 1970s.
The January Effect has everything to do with technical analysis.
Roy Longstreet was a technicalanalyst and trader in the early days
of commodity trading. He refined a quasi-technical approachcalled
the Analogue Year Concept. This approach attempts to find seasonal
repetition of pricebehavior. The January Forex Effect analysis
herein focuses entirely on past price behavior as anindicator of
price expectation. This, in essence, is technical analysis in a
very pure form.
The chart on the top of the next page displays the January
effect in EURUSD. I wish I was short theEURUSD. I thought the pair
had more rallying power, but the Jan. 4 high may be all we get.
8/3/2019 The January Forex Effect, Jan. 8, 2012
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Year Jan. High/Low Price Month % change
2011 1.2874 1.4940 May 16.0%
2010 1.4580 1.1877 Jun 22.8%
2009 1.4363 1.2487 Mar 15.0%
2008 1.4367 1.6020 Apr 11.5%
2007 1.2876 1.4967 Nov 16.2%
2006 1.1799 1.3369 Dec 13.3%2005 1.3582 1.1637 Nov 16.7%
2004 1.2898 1.1759 Apr 9.7%
2003 1.0338 1.2470 Dec 20.6%
2002 0.8568 1.0441 Dec 21.9%
2001 0.9590 0.8350 Jul 14.9%
2000 1.0415 0.8230 Oct 26.5%
1999 1.1869 0.9994 Dec 18.8%
1998 Jan effect did not occur
1997 1.2733 1.0341 Aug 23.1%
1996 1.3669 1.2424 Dec 10.0%
1995 1.2500 1.4530 Mar 16.2%
Average change 17.1%
Subsequent High/Low
January Forex Effect
EURUSD
The January Effect in the forexmarkets is real and it is
substantial.The table to the right shows the %price change produced
from theJanuary high or low in the EURUSD.Of course, it is wishful
thinking tobelieve a trader will catch the full priceswing implied.
Nevertheless, anaverage price change of 17% issignificant. If the
Jan. 4 high of 1.3073holds in the EURUSD, this historicaltendency
suggests a decline to1.0851. Of course, the January Effectcoin has
two sides. There isconventional wisdom for the EURUSDto weaken. The
least expected eventby the market would be for a Januarylow to
occur. Thus, traders need toremain sharp. Markets have a way
ofserving up surprises.
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