Seasonal bias raises short-term pro-inflation risks for EUR/USD, economists at MUFG Bank report.
EUR/USD has been strengthening by an average of 1.8% in the last five weeks of the year.
Covering the entire EUR trading period since 1999, EUR/USD has gained an average of 1.8% over the last five weeks of the year. There is no clear consensus as to why this bias exists, with various reasons provided by market participants.
Some form of squaring the position by the end of the years certainly seems quite likely. Looking at the history of leveraged EUR positions, for example, shows that a much larger portion of time positions are short EUR. About two-thirds of the time since the IMM Leveraged Funds data began in 2006, the position has been short.
Therefore, two caveats are worth mentioning in connection with this year. First, the sharp rally in EUR/USD in November could take away some of the room for the EUR to rise in December, and the positioning right now shows modest long EUR.