Commodity Trader's Almanac 2O11

94

TWO-MONTH YEAR-END EURO RALLY

Here is one of our best foreign currency (FX) plays. We had a hard time deciding whether

or not share it. The euro is weak in the beginning of October and then, towards the end of

the month, begins a seasonally strong period. Since it is a trade phenomenon that has been

shared at several conferences in the past, after long discussions, we decided to add the

trade in last year’s edition. This of course jinxed the trade.

In the short history of the euro currency, the

market seems to make a bottom around the third

week of October; then we see a tendency to make

a price gain against the U.S. dollar by year’s end.

Many factors could be at play to explain this,

such as multi-conglomerate U.S. corporations’

need to make fiscal year-end book adjustments

as well as to make foreign payroll and bonuses.

The trade itself begins by going long on

or about October 26 and holding until about

January 4. Due to the expiration of the December

futures contract, we ran the statistics using the

March futures contract. Overall we have a stellar

72.7% success rate with 8 wins and 3 losses. The

best win was in 2000 with a whopping $14,813

gain. In 2009, the euro had been rallying since the stock market lows in March. Even a

cursory look at the chart would have kept traders out of this trade last year.

Traders can use the spot FX markets, which would eliminate the need to buy a

far out futures ...