Analys från DailyFX
December Seasonality Favors S&P 500 and Euro Gains
– The SP 500 has a strong tendency to rally in the month of December
– The Euro likewise tends to appreciate, lining up well with overall uptrend
– View the charts below to see forex seasonal trends across all major currencies
The SP 500 has rallied in December through a whopping 16 of the past 20 years, while the Euro sees a comparable tendency. How does this fit into our forecasts?
Our recent forecasts leave us mostly in favor of US Dollar and Japanese Yen weakness, and the trading bias lines up fairly well with seasonal forex tendencies.
Beyond the USD and JPY, it’s worth noting that the New Zealand Dollar and Swiss Franc likewise tend to do well in December. The net effect is to give us a further bearish bias on the Dow Jones FXCM Dollar Index, and a break below key support at 10,535 would favor a run towards fresh lows.
See the full rundown of seasonal patterns broken down by currency pairs below, and sign up for future updates via this author’s e-mail distribution list.
Seasonality in the US SP 500 Index
The so-called “December effect” in the SP 500 seems real, as the past 20 years have seen stocks rally in all but four—good for an 80 percent rally rate.
Obviously past performance does not by any means guarantee future results, but stocks are already modestly higher through the second week of the month.
The pressure for mutual funds and other money managers to “window dress”, or by outperforming assets, may push equities to further highs. And indeed recent correlations may likewise favor EURUSD strength.
Forex Seasonality in the Euro/US Dollar
The Euro tends to appreciate in December, having rallied in just over half of the past 20 times in the last month of the year (we use Deutsche Mark exchange rates prior to 1999).
Though well-documented, there’s no obvious reason for the seasonal tendency. In fact, the past 7 years have seen more declines than appreciation.
Yet forex seasonality does line up well with our sentiment-based forecast, and we remain in favor of continued EURUSD gains.
Forex Seasonality in the New Zealand Dollar
The New Zealand Dollar shows a strong tendency to appreciate in December, having rallied in 16 of the past 20 years. It is thus far modestly higher in the first two weeks of trading, and an overall bullish outlook for the SP 500 should favor continued Kiwi Dollar gains.
Forex Seasonality in the Swiss Franc
The Swiss Franc tends to appreciate in the month of December and yet give back those gains in January, leaving us with a roughly neutral seasonal trading bias over the coming two months.
Seasonality in the Dow Jones FXCM Dollar Index
The Dow Jones FXCM Dollar Index has seen no discernible seasonal trend in the past 13 years, running counter to the clear trend in favor of Euro strength. Yet our broader Dollar-bearish trading forecast leaves us mostly in favor of continued weakness.
Forex Seasonality in the British Pound
The British Pound has seen no major seasonal trend in the past 20 years of trading through the month of December.
Forex Seasonality in the Australian Dollar
The Australian Dollar has not shown an especially strong tendency to appreciate or depreciate in the month of December.
Forex Seasonality in the Canadian Dollar
The Canadian Dollar shows weak seasonal tendencies in the month of December, and our seasonality forecasts are as a result neutral the USDCAD.
Forex Seasonality in the Japanese Yen
The Japanese Yen shows little tendency to move up or down through the month of December, rising and falling nearly the same number of times through the past two decades of trading.
Written by David Rodriguez, Quantitative Strategist for DailyFX.com
Contact/follow David via Twitter: https://twitter.com/DRodriguezFX
Sign up for future e-mail updates via David’s distribution list.
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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