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FX Daily107 .pdf

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Deutsche Bank
Markets Research

Foreign Exchange
FX Spot

28 November 2013

FX Daily
Seasonal Greetings
With around 25 working days left before the end of the year, poorer liquidity
and institutions winding down their portfolios and hedging books before yearend may start to influence FX markets as much as fundamentals. Keeping an
eye on seasonals may therefore prove useful. Looking back to 1973, we find
that in general most currencies tend to strengthen against the dollar into yearend (see Figure 1). The Canadian dollar is an exception and some currencies
like the yen only enjoy moderate strength, but the euro (pre-1999 Deutsche
mark) shows its strongest positive up-month in December. Interestingly, most
dollar weakness tends to get unwound in January, so extrapolating trends
from December price action can prove dangerous.
Another way of approaching FX seasonals is to look at how the three core FX
investment styles, valuation, carry and momentum, fare over the months. We
find that momentum or trend-following strategies have their best month in
December (see Figure 2). The most trending currencies of late have been the
pound to the upside and the yen to the downside, so these trends should likely
be followed. Meanwhile, both carry and valuation strategies tend not to exhibit
much of a seasonal bias in December, though they perform well in January.

Figure 1: Dollar Does Poorly In December, But Better In

Figure 2: Follow the Trend In December


Source: Deutsche Bank

Source: Deutsche Bank

Deutsche Bank AG/London

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