For a number of years Factor LLC has issued an update of “The January EUR/USD Effect” (previously titled The January FX Effect). While the effect has been slightly diminished in the past decade, there has been a very strong tendency for the Eurocurrency to establish its annual high or low in the month of January. It is beyond the scope of this document to discuss the reasons for this tendency, but it has to do with annual FX positioning by governments and corporations.
Roy Longstreet was a legendary grain trader and pioneer of technical analysis of commodity markets. As a principal of the brokerage firm Longstreet Abbott, Roy’s specialty was a technical approach known as “analog-year research.” Roy had great insight on the role of emotions in market speculation.
The European Currency Unit (ECU) represented a basket of European currencies (weighted) until the Euro (€) became the official currency of the European Union on January 1, 1999. The Euro (and its predecessor, the ECU) has one of the most pronounced seasonal tendencies of all foreign exchange units or commodity futures markets.
I had a fascinating email exchange with a Factor member from Cambridge University. Together we briefly pieced together the events leading up to the showdown between George Soros and the Bank of England over the value of the British Pound in 1992. The Factor member reconstructed the global macro factors that led Soros to his conviction the BoE would not be able to maintain the Pound’s peg level within the European Exchange Rate Mechanism (ERM) — specifically in relationship to the D-Mark. In turn, I reconstructed the chart developments during the period leading up to Soros’ victory over the BoE.
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