For FX traders, June is an important month expected to bring high volatility and unique market trends. In this blog, we will provide a detailed explanation of the June FX anomalies, including their overview, statistical backing, and the impact of stock and US bond markets on currency exchange rates. By understanding these anomalies, you might be able to turn the high-risk June market into an opportunity. Please read on.
1. What are June FX anomalies?
What is an anomaly?
An anomaly refers to a regularly observed pattern in economics or financial markets that is difficult to explain theoretically. In the currency market, various anomalies exist, and many traders use them as a reference for their trades.
What are June anomalies?
June anomalies involve various factors, with particular attention to currencies such as the Australian Dollar and the Euro. These currencies tend to be more volatile in June due to specific factors.
Technical characteristics
June anomalies also have technical characteristics. For example, many traders go on vacation at the end of May, causing a decrease in trading volume in the forex market. As a result, exchange rates tend to fluctuate widely during certain times.
Fundamental factors
Fundamental factors also play a role in June anomalies. For instance, corporate earnings reports and export-import activities can affect exchange rates. Understanding these factors can help predict the trends in the June forex market.
Future outlook
June anomalies are observed from past data and do not necessarily apply to future markets. However, referencing past data can help understand trends in the June market. Traders should use this information to develop strategies.
This concludes the explanation of June FX anomalies. Understanding anomalies can help better predict forex market trends. However, always remember to trade with proper risk management.
2. Relationship between US long-term bonds and exchange rates
In June, the relationship between US long-term bonds or 10-year bonds and exchange rates is noteworthy. Historical data has shown that these bonds tend to hit annual highs or lows in June. Consequently, forex rates often move in the opposite direction of these bonds.
To utilize this relationship in forex market predictions, focus on the following factors:
- US long-term bonds
- Movements in US long-term bonds (30-year bonds) and 10-year bonds often impact exchange rates. In June, these bonds are likely to hit highs or lows, so monitoring their movements is crucial.
- US stock indices
- The relationship between US stock indices and exchange rates is also significant. In June, the stock market tends to become demand-supply-driven, which can influence exchange rates.
- US Dollar
- Focusing on the correlation with the US Dollar is essential. In June, other factors can significantly influence forex rates.
Considering these factors is crucial for predicting forex market trends. Especially in the latter half of June, the market tends to become more favorable, leading to potential buying opportunities towards the month’s end.
However, these relationships are derived from past data and do not guarantee 100% accuracy in future market predictions. Nonetheless, paying attention to these factors can provide valuable insights for forex market forecasting.
3. Supply-demand cycles in the stock market and their impact on forex
In the stock market, after the concentrated earnings season, the market often becomes “demand-supply driven.” During this period, investor supply and demand significantly impact stock prices, typically leading to a “selling” trend.
The concentrated earnings season usually peaks in March and December. During this time, companies remit profits and invested funds to Japan, requiring them to exchange foreign currency for yen. As a result, many companies sell dollars and buy yen, leading to yen appreciation and dollar depreciation.
Moreover, after the earnings season ends, investor supply and demand influence the market. During this period, with less new information or company performance announcements, the market often moves based on supply and demand balance. Consequently, stock prices fluctuate, and investor trading volume changes accordingly.
Here are the key points regarding the supply-demand cycle in the stock market and its impact on forex:
– Impact on stock prices after the earnings season
In the stock market, after the concentrated earnings season ends, investor supply and demand significantly influence the market. With less new information or company performance announcements, the market often moves based on supply and demand balance.
– Yen appreciation and dollar depreciation during the earnings season
During the concentrated earnings season, companies remit profits and invested funds to Japan, requiring them to exchange foreign currency for yen. As a result, many companies sell dollars and buy yen, leading to yen appreciation and dollar depreciation.
– Favorable conditions in the latter half of June
In June, after the earnings season ends, the market becomes “demand-supply driven,” typically leading to a “selling” trend. However, favorable conditions tend to form in the latter half of June, making the market more favorable towards the month’s end.
In summary, understanding the supply-demand cycles in the stock market and their impact on forex rates is crucial. Investors should pay attention to these changes and predict how they might influence exchange rates.
4. June anomalies from a statistical perspective
Let’s explore the statistical data to understand June anomalies in the forex market.
High volatility of USD/JPY
- According to the past 12 years of June USD/JPY data, the average fluctuation rate is about 468.908 pips.
- USD/JPY tends to be highly volatile in June.
- Traders should anticipate movements of at least 4 yen.
Relatively low volatility of EUR/USD
- According to the past 12 years of June EUR/USD data, the average fluctuation rate is about 383.475 pips.
- EUR/USD has been moving slightly below average, indicating relatively low volatility.
- Excessive volatility contraction can sometimes signal an upcoming sharp movement, so caution is necessary.
Impact of policy rates and statements
- June sees numerous policy rate decisions and statements from major countries, drawing attention to the forex market.
- Based on economic strength and rising prices, rate cuts might occur, making fundamental analysis important.
- Like anomalies, it’s crucial to consider these factors as reference points without excessive bias.
As seen from statistical data, June tends to bring high volatility in USD/JPY and EUR/USD. In USD/JPY, movements of at least 4 yen are expected, so traders should exercise caution. Paying attention to policy rates and statements is also crucial for predicting forex trends. Use statistical data to make the most of June anomalies in FX trading.
5. Favorable timing from past data
Analyzing past data can help identify favorable timing for FX trades. Here are some favorable timings found from past data.
5.1 Price movements before the London fix at the end of the month
Analyzing price movements in the hour before the London fix (closing time of the London market) at the end of the month shows a tendency to rise. The average logarithmic difference calculated from past data is +0.05, indicating an upward trend. However, this average might include the effects of “random large bullish candles,” so caution is needed.
5.2 Proportion of bullish candles in the hour before the London fix at the end of the month
Investigating the proportion of bullish candles in the hour before the London fix at the end of the month indicates a continued upward trend. A high proportion of bullish candles suggests that the market has been rising for most of the period. For example, in this study, the bullish candle proportion was 0.64 (64%), indicating an upward bias.
5.3 Price movements on Gotobi days at the end of the month
On Gotobi days (days ending in 5 or 10) at the end of the month, Japanese importing companies often settle in dollars, leading to dollar appreciation and yen depreciation. Pay special attention to price movements during Tokyo hours.
5.4 Impact of Wednesday swaps
In the FX market, on Wednesdays, in addition to the usual swap points, investors receive swap points for the weekend. As a result, more investors sell low-interest currencies and buy high-interest currencies on Wednesdays, leading to yen depreciation. Pay particular attention to price movements on Wednesdays.
These are the favorable timings found from past data. However, these data are based on past statistics and do not predict future market conditions with certainty. Traders should use this information as a reference and make their own decisions when trading.
Summary
June FX anomalies involve various factors, and understanding their technical and fundamental characteristics can help identify better trading timings. Analyzing past data can also provide useful timing insights. However, these insights should be considered as references, and traders must manage risks and adapt flexibly to market fluctuations. Utilizing this knowledge and building on personal judgment and experience will help achieve advantageous positions in June forex trading.
Frequently Asked Questions
What are June FX anomalies?
June anomalies refer to regularly observed patterns in the forex market that are difficult to explain theoretically. Notably, anomalies in currencies like the Australian Dollar and Euro are observed, influenced by technical and fundamental factors. Although future market predictions have uncertainties, referencing past data can help understand June trends.
What is the relationship between US long-term bonds and exchange rates?
In June, the relationship between US long-term bonds or 10-year bonds and exchange rates is notable. Historical data has shown that these bonds tend to hit annual highs or lows, and forex rates often move in the opposite direction. Traders should consider the movements of US long-term bonds, stock indices, and the US Dollar comprehensively.
What is the impact of supply-demand cycles in the stock market on forex?
After the concentrated earnings season ends, the stock market often becomes “demand-supply driven.” During this period, investor supply and demand significantly impact stock prices, typically leading to a “selling” trend. However, in the latter half of June, favorable conditions tend to form, leading to potential buying opportunities towards the month’s end. These changes in the stock market’s supply-demand balance also affect exchange rates.
What are the favorable timings found from past data?
Favorable timings from past data include price movements before the London fix at the end of the month, movements on Gotobi days at the end of the month, and the impact of Wednesday swaps. However, these data are based on past statistics and do not predict future market conditions with certainty. Traders should use this information as a reference and make their own decisions when trading.