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Can Santa Claus Help the euro?
In the stock market, there is a phenomenon known as the Santa Claus rally. According to Jeff Hirsch, the founder of the Stock Trader’s Almanac, stocks tend to rally in the week between Christmas and New Years Day. Since currencies have a strong correlation with equities, I decided to take this same idea and see how it applies to the EUR/USD and USD/JPY. In the study, I examined how the dollar traded between Christmas Eve and the first two days of January and found that the dollar weakened against the euro 8 out of the last 10 years during this period with an average rally of 1.1 percent. Against the Japanese Yen, the data is less statistically significant with the dollar weakening only 6 out of the last 10 years. This means that a rally in equities next week could boost risk appetite which in turn should help to lift the EUR/USD.