Looking for the Santa Rally in Forex Trading

One of the more interesting trends in stock investing is known as the Santa Rally. This is when the U.S. stock market rallies during the week between Christmas and New Year. But does it hold up for the U.S. dollar?

GFT's Kathy Lien decided to take a look at the Santa Rally, and see whether the U.S. dollar saw such a trend. As you can see, it really doesn't hold for the U.S. dollar. But maybe this year will be different, since the economic climate has created a number of breaks with tradition, and the euro looks ready to break lower. Here is what Lien points out in FX360:

We decided to take this same idea and apply it to the currency market to see how the Santa Claus rally affects the U.S. dollar. Based upon our calculations and as indicated by the chart below, the dollar weakened against the euro 8 out of the last 10 years between Christmas Eve and the first two trading days in January. Against the Japanese Yen, it weakened 7 out of the last 10 years. Statistically these numbers are significant and suggest that the dollar could give back its gains over the next 2 weeks as the stronger performance in equities fuel risk appetite. However we all know that this year is unlike any other and so there is a good chance that this pattern may not be repeated. For the first time since the Lehman Brother’s bankruptcy, the strength in the dollar and the strength in stocks could be a sign that the dollar is finally trading on fundamentals and not risk appetite.