The January FX

November 27, 2015 10:00 AM

You’ve probably heard about the January Effect, where the January performance of major U.S. equity indexes predicts their performance for the entire year. Since 1985, the January Effect was about 50% and 70% accurate for positive and negative performances respectively. 

What about currencies? Is there a January Effect in FX? In our 22 years of data (from 1993 to 2014) the best and worst performing currencies in January have generally replicated their performances for that entire year. In 18 of the last 22 years the pattern was notable, an 82% record. Only four years (1998, 2002, 2009 and 2011) had no noticeable pattern from the January Effect. Here is the data from 2005 for 11 currencies: The U.S. dollar (USD), euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF), Canadian dollar (CAD), Aussie dollar (AUD), New Zealand dollar (NZD), Norwegian krone (NOK), Swedish Krona (SEK) and Danish krone (DKK). 

Oddly, 2005 was a strong year for both the USD and gold. SEK, CHF and DKK were the worst performers in January as well as for the whole year.

In 2006 SEK and GBP rallied in January and the year because of hawkish policies from the Bank of England and Riksbank, while USD, JPY and CAD were underperformers in January as well as on the year.

In 2007 this played out in the CAD and NOK, while there was no evident link for the underperformers.

There was a flight to quality in the JPY in January 2008 and the rest of the year as deleveraging in global markets prompted violent repatriation into the yen. CAD and GBP were among the weakest currencies in January and for all of 2008.

There was no effect in 2009, which is just as well given the massive intervention by global central banks. 

January 2010 was dominated by JPY and AUD strength as well as the full year, while EUR and DKK were the worst performers in both January and year. The explosion of the Eurozone debt crisis sent EUR to the bottom of the rank in 2010 and 2011 and Scandinavian currencies with it, as these were exposed to EUR-dependent Baltic nations.

No relationship in 2011. 

In 2012, NZD was the top performer in January and on the year, partly because of prolonged central bank hawkishness and a 14% increase in dairy prices. USD and JPY were the worst performers for the month as well as on the year. This was similar to 2009 as traders fled these two low-yielding currencies for higher yielding currencies and less stimulative policies.

EUR and DKK were the top performers in January and the year in 2013. Increased market confidence in ECB commitment to stability, falling bond yields and lack of QE helped boost EUR. JPY was the worst performer in January and on the year following aggressive easing of monetary policy from the Bank of Japan.

In 2014, the January Effect was highlighted in GBP, as it was the second best currency against the USD, while showing the second smallest loss against the greenback by year-end. The January Effect failed to hold for all other currencies.

So what’s ahead for the rest of 2015? January 2015 was dominated by the soaring CHF following the Swiss National Bank’s abandonment of its four-year peg to the euro (see “Does manipulation count?”). The jump in the franc likely will preserve the currency at the top of the rankings for the whole of 2015. The second best performer in January 2015 was JPY and remains so as of Oct. 11. Expect JPY to extend its gains in the final month of 2015. Expectations of a further sell-off in global equities by yearend will likely boost the yen, and further drag the Swiss franc below the 120 level. 

The two worst performers of January 2015 were NZD and CAD as a result of the commodities collapse. NZD’s late quarter rebound may lift it out of the bottom three, but the loonie will likely remain at or near the bottom of the pack as oil makes another dead cat bounce.

About the Author

Ashraf Laidi is chief global strategist at City Index-FX Solutions and author of “Currency Trading & Intermarket Analysis.” His Intermarket Insight appears daily on