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.