Here’s Why February Looks Bullish For USD/JPY

February Forex Trading Patterns

With January running down, it’s a good time to take a look forward and see
what February might have in store for the forex market. Using historical
data analysis, we can observe a few patterns of behavior which take place during
the second month of the year. Here are some of the highlights.

USD/JPY

Since the introduction of the Euro in 1999, the Dollar has risen against the
Yen in five of seven years during the month of February. The average move
has been about 120 pips to the upside. You might ask whether this is
really all that significant. Given that during the six years prior to the Euro’s launch USD/JPY had fallen every time at an average rate of nearly 275
pips, there is definitely evidence to suggest that something fundamentally
changed in the market structure, creating a new pattern of behavior.

The statistics, however, merely serve to support the charts. USD/JPY
has entered a consolidation phase within the longer up trend, at least for now.
The market pulled back sharply in December, but that does not, as yet, seem to
have killed the upside bias. We are quite likely to at least see a test of
the December peak. There could very easily be a rally through February to
bring the market up toward, or above, the 120 area.

Based on the data, the weekday to watch in February is Wednesday. Over
the past seven years, USD/JPY has been up on the third day of the week 64% of
the time, averaging a gain of 33 pips. That single day has essentially
accounted for all the February gains as the combined average pip move of the
other four weekdays is -9.

JPY Crosses

Yen weakness in February is not restricted to the Dollar, though. It
can also be seen in the crosses. AUD/JPY is probably the strongest
example. This year the Aussie continued it’s string of rising in January
every annual cycle since 1999. February is not quite as consistent, being
up just 5 of 7 years in the Euro-era. The average monthly increase has
been about 85 pips, a bit over 1%. CAD/JPY and CHF/JPY both have a similar
track record for the month.

As in the case of USD/JPY, there is a lengthy uptrend in place for AUD/JPY.
The market could very easily trade higher in February once more.

Other Patterns

Sterling has some interesting patterns of behavior of its own. During
the month of February, GBP/USD has fallen on Wednesday at a rate of 63% of the
time and on Friday 65%, falling average of 26 and 34 pips each time.
Similar action can be see in GBP/AUD, especially in the case of Fridays where
the cross has fallen 68% of the time, averaging 45 pips. Against the CAD,
the pattern is the same. GBP/CAD had dropped at a rate of 67% on Fridays
in February, on average losing 53 pips.

Conclusion

It is important that one not simply take these numbers and either buy or sell
outright based upon them. This quantitative observation merely represents
biases, not sure things. Patterns can be broken. It happens all the
time. If one uses good money management, however, the application of this
kind of information can be quite beneficial.

Acknowledgements: Charts courtesy of
Metastock. The data presented comes
from the book
Opportunities in Forex Calendar Trading Patterns
.

John Forman is a near 20-year veteran of trading and investing across a wide array of markets and instruments. He is author of the forthcoming book,
The Essentials of Trading (Wiley, April 2006)
and is currently working on a new book –
Trading With Fire. His analysis and market comments have been found in the financial news media across the world and he has published dozens of articles on trading methodology and analytic technique. To learn more about John’s research and trading activities, visit the
Anduril Analytics website.