As many technical analysis traders will attest, patterns have and do form in the financial markets. The definition of Seasonality is that patterns occur predictably at given times of the year. Therefore it should come as no surprise then that there is also an interesting pattern in the US dollars behavior in the month of December.
Euro US Dollar (EUR/USD)
Over the past 20 years, historical analysis indicates that from December 1st to December 31st, the euro appreciated against the U.S. dollar 15 out of 20 times, which is roughly 75 percent of the total sample. The seasonality is stronger if we zoom into the last 12 years where the currency appreciated 10 out of the 12 samples. (Synthetic euro prices were used prior to January 1999). There are many reasons to explain this, but the most obvious may be year end repatriation out of US dollar assets. More specifically, the data indicates that the Euro gained on average, 3 percent during the positive months and lost just 1.41 percent during the negative months. This suggests that even if we have a strong holiday shopping season in the US, first off, the effect on the currency may not be seen until January and secondly, any optimism about potential sales that is generated in December may not be reflected in the US dollars price action that month.
The seasonality effect is fairly strong in the GBP/USD and USD/CHF but is weak in USD/JPY.
British pound US Dollar (GBP/USD)
The sterling appreciated against the U.S. dollar in the month of December, 14 out of the past 20 years times which is roughly 70 percent of the total sample. Like the EUR/USD, the seasonality factor was stronger in the last 10 years with the GBP/USD appreciating 8 years out of the last 10 samples. On average, the GBP/USD gained 2.37 percent during the positive months and lost only 1.15 percent during the negative months.
US Dollar Japanese Yen (USD/JPY)
Since 2002, the U.S. dollar has depreciated against the Japanese yen during the month of December but over the past 20 years, the U.S. dollar fell against the Japanese Yen 9 out of 26 times, which indicates a very low seasonality factor. On average, the Japanese yen gained 3.41 percent during the positive months and lost 2.04 percent during the negative months.
US Dollar Swiss Franc (USDCHF)
Over the past 20 years the US dollar fell against the Swiss franc 14 out of the 20 times in the month December which represents 70 percent of the total sample. Dollar losses were more visible in the past 7 years with the USD/CHF falling during 6 of those occasions. The Swiss franc gained on average 2.83 percent during the positive months and 2.01 percent during the losing months.
