A “Santa Claus Rally” for Euro Traders?

12/28/2010 12:01 am EST

Focus: FOREX

Kathy Lien

Managing Director and Co-Founder BKForex LLC, BK Asset Management

In the stock market, there is a phenomenon known as the “Santa Claus rally.” According to Jeff Hirsch, editor-in-chief of the Stock Trader’s Almanac, stocks tend to rally in the week between Christmas and New Years Day. Since currencies have a strong correlation with equities, I decided to take this same idea and see how it applies to the EUR/USD and USD/JPY.

In the study, I examined how the dollar traded between Christmas Eve and the first two days of January and found that the dollar weakened against the euro eight out of the last ten years during this period with an average rally of 1.1%.

Click to Enlarge

Against the Japanese yen, the data is less statistically significant with the dollar weakening only six out of the last ten years. This means that a rally in equities this week could boost risk appetite, which in turn should help to lift the EUR/USD.

By Kathy Lien of KathyLien.com

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