Brief Note on Yearend Seasonality of the EUR/USD

December 28, 2015

Between mid-December and yearend, the dollar has on average declined 0.6% since 1999 against the common European currency.  With just over three days left before markets close on December 31, the dollar is showing a 0.4% dip since trading closed on December 15.

A pattern of end-year dollar softness against the main European currency established itself quickly and in a profound way after flexible dollar exchange rates were introduced in March 1973.  From 1974 until 1987, the dollar depreciated against the Deutshe mark in 13 of 14 years from mid-December to endyear, and the average loss in those periods was 1.7%.  The only exception came in 1984, when dollar demand turned extraordinarily speculative as attested by an 11.5% additional rise in the first eight weeks of 1985. 

Notwithstanding the aforementioned 0.4% dip since trading closed this past December 15, the dollar’s propensity to ease against the euro during late December essentially disappeared in recent years.  The average movement of the EUR/USD pair between mid-December and endyear in the ten years through 2014 was zero, and the euro posted an average 0.4% loss in the most recent five of those years.

Mirroring the pattern of dollar depreciation late in December, a pattern of appreciation emerged in the dollar against the mark when a new international monetary system of flexible rather than fixed dollar rates was launched in 1973.  From 1975 to 1988, corresponding to 1974-1987 late December period mentioned above, the dollar advanced in 10 of 14 years and rose on average by  0.9% against the mark between the yearend closing and January 15.  This average climb reversed only above half the late-year swoon.  Since it also happened with somewhat late regularity, the end-of-year seasonality grabbed more attention than the ensuing rebound.

However, whereas statistically significant endyear weakness in the dollar no longer exists, the pattern of early January strength continues and, if anything, is more prevalent than before.  Since the euro was birthed at the beginning of 1999, the U.S. currency on average has recorded an average advance against the common European currency of 0.9%, matching the average change of dollar-mark during 1975-1988.  During the past ten Januarys, the dollar on average has risen by 1.1% against the euro through mid-month, and the mean advance was 1.3% in the most recent five measured years.  A 4.0% appreciation of the dollar by January 15, 2015 was the strongest since a 6.0% jump recorded in the first fifteen calendar days of 2008.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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