Search ForexCrunch

EUR/USD managed to stabilize after reaching a bottom at 1.1750. Can the pair attempt to break lower once again or is a bigger bounce underway?

The team at Nomura looks at seasonals and sees an interesting phenomenon regarding euro/dollar.

Here is their view, courtesy of eFXnews:

For a while now, Nomura has held the view that the euro would depreciate further  on weak inflation dynamism, rebalancing outflows from reserve managers due to negative yields, and large Eurozone investor fixed income outflows due to a declining home bias.

In accordance with this view, Nomura has been short EUR fairly aggressively in various forms going into January, but now warns that a seasonal near-term EUR/USD reverse could be in the making.

Specifically, Nomura outlines the following points on the chart below:  

1- EURUSD often sees mean reversion in the third or fourth week of the year if there was a big move in the first two weeks.  Now what about seasonality around January, when investment managers typically engage in new strategies?

2- Breaking down the monthly returns into weeks, we see that large start-of-the-month moves are typically followed by much smaller moves in the same direction or outright reversals, as was the case in several of the last 15 years.

EURUSD usually reverses after a sizable move in the first two weeks of January

3- Looking at the weekly seasonality of EURUSD in the past 15 years, euro had a higher than 2% move (in either direction) in the first two weeks of January in 2005, 2006, 2007, 2009, and 2012. In most of these years, the euro saw an immediate reversal in either the third or the fourth week.

4- We see this as evidence – albeit statistically, perhaps, only weakly significant – that there is a tendency for investment themes that are playing out very early in the year to be questioned after only a few weeks.

For lots  more FX trades from major banks, sign up to eFXplus

By signing up to eFXplus via the link above, you are directly supporting  Forex Crunch.