We pointed out that oftentimes, around the end of the year, the market has a seasonal pattern of dollar weakness due to taxation reasons. This year was no different with the last few days of the year showing some USD weakness. However, it is also noteworthy that the USD sees some strong seasonal strength around the start of the year. The same reason that sees dollar weakness at the end of the year is the return of USD flows into US companies that sees strength in the USD around the start of the year.
Over the last 25 years, the USD has risen 19 times between Jan 01 and Jan 09. The largest gain has been +2.45% in 2005 and the largest loss -2.08% in 2004. The percentage of winning trades has been 76.00%. The annualised return is 33.95%.
Major Trade Risks: The main risk to this seasonal pattern would be if there is a sudden change from the Fed’s expectations to raise interest rates 3 times this year.
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