Anomalies in financial markets are interesting subjects which have been studied by practitioners and researchers in different markets. Same story exist for currencies and I tried to replicate the effect of December (last month of the year) on EurUsd pair, base on January 2002- November 2012 daily market rates.
During the last decade daily fluctuations of EurUsd in December sometimes has been less than the rest of the year and sometimes it has been higher. To compare December effect with the rest of the year the last 10 years daily highs and lows are considered in whole year and also first 11 months of the year. Then they are compared with same changes in December. It’s visible in below figure that volatility in December has been less during 2002-2006, while this measure has been higher than the rest of the year in 2007 and 2008! In last three years (2009-2011) also the volatility has bounced back in December compare to the rest of the year. Although the general fluctuations of EurUsd have been decreasing since 2009 but this reduction has occurred in higher scales in the month of December. Meanwhile it might be interesting to know that daily changes of EurUsd in first 11 months of the year in 2012 has failed considerably compare to previous years and it is as low as 2004 level. It may indicate that if market goes in same mood of 2007-2011 the daily fluctuations in December 2012 would be in lowest levels (75-100 pips per day).
In the other hand, instead of paying attention to the difference between daily highs and lows (fluctuation) it might be useful to study daily returns (close prices minus open prices) in a similar way. As it’s also shown in above picture, daily returns have recorded bigger (absolute) measures in December compare to the rest of the year. In contrast with daily fluctuations, which have been less in December. It might be an indication about higher reward and less risk for day traders in December!
Comparing the daily returns in whole year and December also shows that (close to) neutral returns in whole year are not followed by same result in December.
On top of that we have seen a divergence between Daily Returns in first 11 months of the year and December. Since 2008 whenever average daily returns in January to November have been failing the daily returns in December have been rising and vice versa! This can be interpreted that in following December Euro would beat US dollar!
If everything comes right with this “little study” we would have a bullish EurUsd monthly candle stick with big body and small shadows in December 2012.
But it might be necessary to remind that earlier statistical findings on EurUsd are showing minor connection between past and future, so findings of this “little study” shouldn't be overestimated