Market Efficiency? The Euro Is Looking Forward to the Weekend!

Feb 21, 2018

As I have shown in previous issues of Seasonal Insights, various financial instruments are demonstrating peculiar behavior in the course of the week: the S&P 500 Index is typically strong on Tuesdays, Gold on Fridays and Bitcoin on Tuesdays, similar to the S&P 500 Index.

You can look up the intra-week patterns of these and other tradable instruments in past issues of Seasonal Insights.

A number of readers have inquired whether currencies exhibit such patterns as well. Are these large markets also home to such statistical anomalies, or is market efficiency winning out in this case?

Let us take a closer look.

The euro: weak on Mondays, strong on Fridays!

Below I examine the performance of the EUR-USD exchange rate broken down by individual days of the week.

The chart shows the annualized performance of EUR-USD since 2000 in black, as well as the performance on individual days of the week in blue.

The performance is measured from one closing price to the next; for example, the performance on Tuesdays refers to the price change between the market close on Monday to the market close on Tuesday.

Euro, annualized average performance by days of the week, 2000 to 02/2018

The euro is weak on Mondays, but very strong on Fridays. Source: Seasonax

As the chart illustrates, two days are standing out: the euro’s performance on Monday was on average quite weak, but its performance on Fridays was very strong. The special status of these two days of the week is very pronounced: on Mondays the euro declined by 1.90 percent annualized on average, while it rose by 1.73 percent annualized on Fridays. Over the week as a whole, the average annualized gain totaled just 1.12 percent.

Thus investors who held the euro exclusively on Fridays were able to reap stronger returns than those who held the currency through all days of the week!

The special status of Mondays is quite pronounced as well, albeit in the opposite direction.

It appears that in the realm of currencies there exist not only long-term cyclical patterns such as annual seasonality (which you can easily look up at, or in the Seasonax App), but also typical specific intra-week patterns. Let us take a look at these patterns in more detail.

The days of the week under the magnifying glass

The next illustration shows the overall performance of EUR-USD since the turn of the millennium in black, as well as the cumulative performance of the currency pair on individual days of the week in other colors.

Euro, performance broken down by individual days of the week, indexed - from 2000 to 02/2018

The performance on Fridays beats them all! Source: Seasonax

As the chart shows, the gold-colored line depicting the cumulative returns achieved on Mondays declined quite steadily over many years. Even in bull market periods such as from 2002 to 2008 the euro fell on Mondays overall. Conversely, the blue line depicting the cumulative returns achieved on Fridays developed quite satisfactorily.

Statistical anomalies exist also in the realm of currencies!

We have already discussed the effects the FOMC meeting exerts on the euro, as well as the euro's annual seasonal pattern – in connection with the latter we were able to establish a sound rationale for the existence of the pattern in the form of US tax regulations. We have now addressed a third recurring statistical anomaly in the form of the euro's intra-week pattern. Particularly the two days surrounding the weekend are standing out in this context. As an aside, in the Seasonax App you can also look up the precise average intra-day patterns of EUR-USD on Mondays and Fridays.

Take advantage of statistical anomalies!

As this study clearly shows, anomalous week day patterns are quite pronounced in currency exchange rates as well. As a trader, investor or dealer you can take advantage of these and other statistical anomalies. You can do so by either visiting my free-of-charge web site, or by calling up the Seasonax App on your Bloomberg or Thomson Reuters system. There are never any guarantees in the markets, but you can certainly let probabilities work in your favor.