How EUR/USD Performs During Election Years

2012 is a big year for politics with 10 countries holding Presidential Elections. The potential leadership changes in the United States, France, Russia, Venezuela, Hong Kong, Finland, India, South Korea, Mexico and Taiwan are all important, but some more so than others. For example, the outcome of the elections in Hong Kong, Finland and Taiwan will only impact the markets domestically whereas the outcome of the U.S. and French elections could have global repercussions.

The Presidential battles in Washington and Paris mean that world leaders will be more focused on domestic developments than global cooperation. Unfortunately this comes at a dangerous time when countries around the world need to work together to help each other rise from the ashes. For the currency market, an inward focus could mean less global progress and more risk aversion / deleveraging / demand for safe havens like the U.S. dollar. Stocks usually perform well in election years – 2008 was different because we had the financial crisis but over the past five decades stocks fell only 4 out of 17 election years. Using the deutschmark as a proxy, we analyzed data on the EUR/USD going back to the 1970s which covers 9 election years in the U.S. As shown in the table below, we found that the EUR/USD weakened 8 out of the 9 election years by an average of 6 percent. In other words, the U.S. dollar tends to perform well against the euro in election years. No consistent election year patterns were found in USD/JPY or the Dollar Index. Although history does not always repeat itself, it is helpful to understand where the seasonal bias lies. The EUR/USD has performed extremely well in the start of the year, but eight out of nine times are very high odds and for this reason, we would not be surprised to see the EUR/USD reverse trend as the year progresses.

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

Visit: Kathy Lien

Be the first to comment

Leave a Reply

Your email address will not be published.


*