EURUSD January Effect: Fact or Fiction?

A colleague asked me about the EURUSD January Effect and whether it might play out this year. Before I could answer that I needed to investigate how accurate the January Effect is and whether it was more fact than fictiom. I looked back since the EURUSD was launched in 1999 and the evidence is far from conclusive and suggests it may be more fact than fiction based on recent history as I show in the table below.

The January Effect

The history of the EURUSD has shown that the high or low for the year often occurs during the month of January. As the table below shows, since 1999, when the EURO was launched, the high or low for year was set in January in 9 out of 17 years (53%). However, if 2002 and 2011 are included, the January Effect occurred in a more convincing 65% or 11 out of 17 years (note in 2002 the low was set on Feb 1 and only by 9 pips so close enough to be included as a January effect. In 2011, the January low held until just before yearend on December 29, when it was extended by just 21 pips so that can be included as well). However, over the past 8 years, the January Effect occurred a less convincing 37,5% or 3 out of 8 years (including 2011) although included in that sample were the height of the financial crisis in 2008-2009.

So is the January Effect fact or fiction?

Looking at the above table suggests the pattern has lost steam but this does not mean it cannot be a factor in trading, especially since many still assume this as reality more than a myth. Arguing against a January Effect is the fact that it has only occurred during one of the past 4 years, this being in 2015. .The high for the year was set on the first trading day, which will increase the importance of the 1.0946 high set on January 4 of this year.

In any case, the January range is still important and if one or the other side holds, then talk will increase that there may be a January Effect this year and that could influence medium term sentiment. This suggests keeping an eye on the January range to see which side of history repeats itself this year.

Jay Meisler, founder

Global Traders Association

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.