For a number of years, Factor LLC has issued an annual update of “The January EUR/USD Effect” (previously titled The January FX Effect).

While the January Effect has been slightly diminished in the past decade, there has been an extraordinarily strong historical tendency for the Eurocurrency to establish its annual high or low in the month of January/early February. It is beyond the scope of this document to discuss the reasons for this tendency, but it likely has to do with annual FX positioning by governments and corporations.

In fact, in 39 of the past 50 years (a 78% rate), the Euro currency (or European trade-weighted proxy prior to 2002) has experienced an annual top or bottom in January (or early in February). The average subsequent price gain or loss from the January high/low during these years has been 19.1%, not an insignificant amount, especially considering the size of the FX market.

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Of course, the challenge for traders is to determine whether the January of a newly entered year might mark a low point or high point for the Eurocurrency. Yet, even knowing the probabilities exist for a high or low during a certain time frame can be an enormous edge for sophisticated market speculators. Hopefully, using global macro considerations along with technical factors, a trader might make an educated guess early in the new year.

There are some factors to be considered as we anticipate 2022 .

Bullish USD technical considerations

• The global financial system is heavily short USDs via the Eurodollar mechanism, an ingredient for a possible short squeeze [see here]

• The interest rate differential between the ECB (0%) and U.S. (.25%) favors the U.S. Dollar

• The trend in the USD is currently up. Trends in currency markets tend to persist longer than expected. The chart on the next page suggests that the US Dollar Index could advance toward 103 before hitting major resistance Bullish EuroFX technical considerations

• The composition of open interest in $USDX futures shows Commercial interests holding a near-record short position and Speculators holding a near-record long position. Historically such a COT profile is associated with price peaks in the U.S. Dollar

• The Euro currency declined steadily during 2021 and a counter-trend correction could occur

• The U.S. Fed continues to deflate the USD through the printing press

• EuroFX chart support is heavy below $1.12. In fact, the Eurocurrency is approaching support as reflected by a 50 -year trendline (see chart at bottom of next page)

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Monthly EUR/USD price charts by decade

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