We look at seasonal patterns in markets in January and reveal three top seasonal trends for the month:

#1: It’s scary how well-aligned the dollar trade is

DXY seasonals January

DXY seasonal heatmap

There are a multitude of reasons to make a New Years Resolution to buy the US dollar and it’s virtually every analyst’s favourite trade for 2015. Here’s another reason: January is the strongest month for the Dollar Index over the past 30 years, averaging a 1.04% gain.

January, especially early January, tends to be a momentum-chasing month with traders piling into what worked best last year. In addition, expectations for ECB sovereign quantitative easing are increasing and the US economy is solid.

By this point, you’ve likely heard a dozen reasons to buy the US dollar. It’s tough to follow the crowd and chase a trade that’s already rallied but if you want to make a Resolution in your trading in the year ahead, don’t fret so much about following the crowd — make friends with the trend because it’s almost always where the best trades lie.

The rest of the list:

January seasonal trades #2: That sinking feeling for sterling

January seasonal trades #3: Glitter with the gold bugs

Other January seasonal patterns:

  • It’s the worst month for the (synthetic) euro over the past 30 years
  • January is the fourth worst month for AUD and NZD versus the US dollar
  • It’s the best month for USD/JPY over the past 30 years but over the past 10 years it’s the second-worst month
  • The rule of thumb on stocks is that ‘as goes January, so goes the year’ but last January the S&P 500 was down 4% but scored a 13% rally on the year.