Trading Perspective Update – The January Forex Effect

March 1, 2011

In early January I issued a report on the January Effect in the forex markets. Specifically, there is an
extremely strong tendency for the U.S. Dollar to establish an annual top or bottom during the first five
weeks of each year. In fact, the US$ has put in its annual top or bottom 67 percent of the years dating
back to the early 1970s against a sampling of other forex units. By comparison, the random statistical
odds for a high or low to occur in any given month is 16 percent.

From a trading perspective, this seasonal pattern means that traders with a strong opinion need to put
their skin in the game during January.

The January Forex Effect

EUR/USD CHF/USD USD/JPY US$ Index

1973 No data No data No data
1974 No data No data No data
1975 No data No data
1976 No data No data
1977 No data
1978 No data January high
1979 No data
1980 No data January low
1981 No data
1982 No data
1983 No data
1984 No data
1985 No data
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

Given this seasonal tendency, let’s look at some forex pairs as of today (Mar. 1, 2011). There is a
67percent chance that the highs or lows for the year are already in place. This represents statistical

1
odds, not a guarantee for profits. This does NOT mean traders should chase the current trends. It
does mean that the burden of proof for the remainder of the year is on the US$.

plb
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