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The January Forex Effect, Jan 2013

The January Forex Effect, Jan 2013

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Published by Peter L. Brandt

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Published by: Peter L. Brandt on Jan 09, 2013
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January 8, 2013
Factor Special Update – The January Forex Effect
I have covered the January Forex Effect several times over the years. This phenomenon can be sucha powerful trading edge that it demands emphasis whenever possible.The January Forex Effect is the historical tendency for the U.S. Dollar to establish at least a half-yearhigh or low during January – a high or low that often becomes the absolute annual high or low. In fact,the EURUSD has made a significant high or low in 29 of the past 40 years (dating back to thecommencement of forex futures trading at the IMM).From a trading perspective this is a vitally important phenomenon because it can define risk.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 “Analog 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 monthly chart below shows the EURUSD dating back to 1993, a period of 20 years. As noted bythe red (highs) and green (lows) arrows, the January effect has worked in this forex cross in 17 of thepast 20 years. The same pattern can also be found in the US Dollar Index, USDJPY and USDCHF(not shown)

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