A Plethora of Headaches

We hope the recent market turmoil is not giving our readers too much of a headache. As you are no doubt aware, the events of the last few weeks have made maneuvering around global markets rather difficult.

 

A less than happy NYSE floor trader [PT]

Photo crdit: Brendan McDermit

 

The US faces uncertain economic times, as Trump and Xi Jinping remain locked in a bitter trade dispute that is likely to go on for some time, creating uncertainty for the future of economic relations between the world’s two biggest economic powerhouses [ed note: over the weekend news emerged that Trump and Xi agreed on a truce and no further escalation in the dispute should be expected for the time being, but it remains to be seen whether the hatchet will remain buried for good].

On the other side of the Atlantic, Brexit is still not off table – on the contrary, it has proved to be an endless saga which has been in the media spotlight for almost two and a half years now. On top of that, Italy’s budget drama is giving the markets the jitters, as is the latest confrontation between Russia and the Ukraine.

The USD is rallying strongly against this backdrop, which is contrary to its typical behavior at this time of the year. What should one make of this development? Will the US dollar continue to appreciate, or will its usual pattern of a seasonal decline at the end of the year prevail?

 

The Euro Typically Rallies at the End of the Year and Falls Again Immediately Thereafter

The chart below illustrates the seasonal trend of the euro relative to the US dollar. It is not the type of price chart one usually encounters. Rather, the seasonal chart depicts the average trend in the euro in the course of a calendar year.

The horizontal axis shows the time of the year, the vertical axis the average percentage move in in the exchange rate over the past 43 years. In this way the seasonal trends of the euro can be discerned at a glance.

 

Euro vs. US dollar, seasonal trend over the past 43 years. A strong seasonal uptrend in the euro is in evidence at the end of the year.

 

The period of seasonal strength in the euro at year-end is highlighted in blue. This phase begins on November 27 and ends on December 31.

Thereafter the euro typically declines again. If you look closely at the chart, you will notice that the change in trend occurs precisely at the turn of the year. This is quite conspicuous and there has to be a reason for it – more on this further below.

 

Strength in the Euro at the End of the Year is no Coincidence

The average gain in the seasonally strong period between November 27 and December 31 amounts to 1.24 percentage points – quite a sizable amount, as currencies tend to be far less volatile than e.g. stocks.

The following bar chart shows the percentage moves in the exchange rate in the period November 27 – December 31 for every year since 1975.

 

Euro vs US dollar: percentage return between 11/27 and 12/31 for every year since 1975. The euro typically rallies at year-end.

 

The green bars indicate gains. They predominate both in terms of size and frequency. This makes clear that the euro’s seasonal rally at the end of the year  is not generated by a handful of statistical outliers. What is the reason for the euro’s strength at this time of the year though?

 

What Drives the Euro’s Seasonal Rally at the End of the Year

The fact that the euro turns down vs. the US dollar again, right at the turn of the year already hints at the likely cause of this seasonal pattern. It has to be directly linked to the calendar. And what happens at year-end? It is the balance sheet date!

The euro’s year-end rally inter alia has to do with US tax legislation. Many US companies are able to reduce their tax liability by understating certain financial figures as much as possible at the reporting date. In this context it can be worthwhile to transfer funds to the accounts of foreign subsidiaries.

The associated increase in demand for the euro naturally has an effect on its exchange rate. Therefore,  the euro typically strengthens against the dollar late in the year.

After the turn of the year, the tide immediately turns again as companies reverse these transfers of funds. The typical move in the euro’s exchange rate against the US dollar is therefore primarily a result of tax avoidance strategies practiced by US companies.

What is the effect on other currencies though? Find out more about this in our web-based application.

 

Make Use of These Patterns!

With the help of the Seasonax Web App, you can examine such patterns – using nothing more than your browser. You can analyze more than 12,000 assets and find seasonal patterns of your own. We invite you to visit  app.seasonax.com and test out the patterns we offer for free.

There are no guarantees in the markets, but you can certainly let probabilities work in your favor!

 

Dimitri Speck specializes in pattern recognition and trading systems development. He is the founder of Seasonax, the company which created the Seasonax app for the Bloomberg and Thomson-Reuters systems. He also publishes the website www.SeasonalCharts.com , which features selected seasonal charts for interested investors free of charge. In his book The Gold Cartel (published by Palgrave Macmillan), Dimitri provides a unique perspective on the history of gold price manipulation, government intervention in markets and the vast credit excesses of recent decades. His ground-breaking work on intraday patterns in gold prices was inter alia used by financial supervisors to gather evidence on the manipulation of the now defunct gold and silver fix in London. His Stay-C commodities trading strategy won several awards in Europe; it was the best-performing quantitative commodities fund ever listed on a German exchange.

You can find an introduction to the Seasonax app and in-depth information on what it can do here. Furthermore, here is a complementary page on the web-based Seasonax app, which costs less and offers slightly different functionality (note: subscriptions through Acting Man qualify for special discounts – for both the Bloomberg/Reuters and the web-based versions of the app. Details are available on request – simply write a note to info@acting-man.com with the header Seasonax!).

 

Charts by: app.seasonax.com

 

Image caption & editing by PT

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • A Surprise Move in Gold
      Traders and Analysts Caught Wrong-Footed Over the past week gold and gold stocks have been on a tear. It is probably fair to say that most market participants were surprised by this development. Although sentiment on gold was not extremely bearish and several observers expected a bounce, to our knowledge no-one expected this:   Gold stocks (HUI Index) and gold, daily. As noted in the annotation above, a Wells Fargo gold analyst turned bearish at the worst possible moment...
  • May Away
      May Gone in June... Yes, now that June is here, it is indeed the end of May. Theresa May, to be precise, the henceforth former British Prime Minister. After delivering her unparalleled masterclass in “how to completely botch Brexit”, British cartoonists are giving her a well-deserved send-off, which we are documenting below. But first, in case you don't know anything about Ms. May's heroic “Brexit”-related efforts, here is an explanation of how she tried to finagle the best...
  • US Money Supply Growth and the Production Structure – Signs of an Aging Boom
      Money Supply Growth Continues to Decelerate Here is a brief update of recent developments in US true money supply growth as well as the trend in the ratio of industrial production of capital goods versus consumer goods (we use the latter as a proxy for the effects of credit expansion on the economy's production structure). First, a chart of the y/y growth rate of the broad US money supply TMS-2 vs. y/y growth in industrial & commercial loans extended by US banks.   At...
  • Elizabeth Warren’s Plan to Bamboozle American Voters
      A Plan for Everything! The run-up to the presidential primaries offers a funhouse reflection of American life.  Presidential hopefuls, hacks, and has-beens turn to focus groups to discover what they think the American electorate wants. Then they distill it down to hollow bumper stickers. After that, they pump their fists and reflect it back with mindless repetition.   A plea for clemency from Mr. 1/1024th crow. [PT]   Change We Can Believe In.  Feel the...
  • The Ugly End of Globalization
      The Ugly End of Globalization Sometime in the fall of 2018 a lowly gofer at the New York Stock Exchange was sweating  bullets.  He had made an honest mistake.  One that could forever tag him a buffoon.   Art Cashin the living hat-stand, going through a succession of DJIA milestone hats. He promised was going to crack a smile for the Dow 27,000 hat photo, alas, it was not to be. [PT]   After trading sideways for most of the spring, the Dow Jones Industrial...
  • Gold vs. Silver - Precious Metals Supply and Demand
      Is Silver Still Useful as a Monetary Metal? The price of gold jumped a whole twenty bucks last week. We imagine that the marginal gold bug is relieved to be rid of his gold, in this opportunity afforded by the highest price since early April. OK, all kidding aside, the price of silver went up a penny.     The gold-silver ratio keeps hitting new highs recently (this is actually a long-term trend, frequently interrupted by strong rallies of silver against gold). Is silver...
  • Fed Chair Powell’s Plan to Pickle the Economy
      A Loose Relationship The Dow Jones Industrial Average made another concerted run at the elusive 27,000 milestone over the last several weeks.  But, as of this writing, the index has stalled out short of this psychosomatic barrier.  By our estimation, this is for the best.   Since early 2018 the DJIA has gone nowhere, albeit in interesting ways... [PT]   While not always apparent, the stock market generally maintains a loose connection to the underlying...
  • The Italian Job - Precious Metals Supply and Demand
      Lira Comeback? The price of gold jumped 35 bucks last week, and that of silver 48 cents. The dollar is now down to 23 milligrams of gold. Keith is on the road this week, so we will just comment on one thing. If Italy is serious about moving back to the lira, that will make the euro less sound (to say nothing of the lira). That will drive people mostly to the dollar, but also to gold.   Italian deputy prime minister Matteo Salvini (as the leader of the Lega party he is...
  • Paul Tudor Jones Likes Gold
      Gold is Paul Tudor Jones' Favorite Trade Over the Coming 12-24 Months In a recent Bloomberg interview, legendary trader and hedge fund manager Paul Tudor Jones was asked what areas of the markets currently offer the best opportunities in his opinion. His reply: “As a macro trader I think the best trade is going to be gold”. The relevant excerpt from the interview can be viewed below (in case the embedded video doesn't work for you, here is a link to the video on...
  • Bitcoin: What is the Best Day of the Week to Buy?
      Shifting Patterns In the last issue of Seasonal Insights I have discussed Bitcoin’s seasonal pattern in the course of a year. In this issue I will show an analysis of the returns of bitcoin on individual days of the week.   Bitcoin, daily – since bottoming in early December, BTC has advanced quite a bit. It remains an excellent trading sardine. [PT]   It seems to me that Bitcoin is particularly interesting for this type of study: it exhibits spectacular price...
  • Silver Remains a Monetary Metal - Precious Metals Supply and Demand
      Silver Price Driven by Reservation Demand The price of gold went up a buck last week, but the price of silver dropped back 13 cents. And the gold-silver ratio marches further upwards. Keith spoke at a conference this week, about how to analyze the fundamentals of supply and demand in gold and silver. He talked about the basis of course.   Silver coins – silver prices are partly influenced by an industrial demand component, but the fact that they move most of the time with...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!