EUR/CHF intraday seasonality overview, 2003-2010

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Written by Forex Automaton   
Monday, 24 January 2011 15:07
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EUR/CHF intraday seasonality overview, 2003-2010
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The EUR/CHF hourly average log returns, even non-zero in a systematic way, are too low to offer a tradeable strategy. The time series is mean-reverting on the hour scale throughout the day showing no signs on a regime switch common to some other exchange rates.

The report uses hourly data from January 1st, 2003 through January 1st, 2011.

As always, the quantities we are going to look at are not the actual low, high and close. Since prices are always positive, they are trivially correlated; this feature is absent in the correlations of the so-called logarithmic returns (or logarithmic increments) which are the ratios of price levels (low, high, close) to the values they had during the previous hour-long time interval. The return is assigned to the end point of the hour. For example, the difference in hourly close between the hours 7am-8am and 8am-9am is assigned to 9am in the plots.

Central European time is chosen because it allows one to split the forex week into 5 non-interrupted trading days.

Seasonality effects in first-order statistics (means) are straightforward to utilize in trading, therefore one could argue that such effects are not likely to be found. Nevertheless, sometimes such effects are visible and significant. To look for them, we average logarithmic returns for each hour of the day separately using profile histograms. The resulting histograms are plotted in Fig.1.

EUR/CHF averaged log return vs CET hour of the day, in 2003, 2004, 2005, 2006 1.1 EUR/CHF averaged log return vs CET hour of the day, in 2007, 2008, 2009, 2010 1.2 EUR/CHF averaged log return vs CET hour of the day, sum over 2003-2010 1.3

Fig.1. Averaged logarithmic return vs hour of the day in CE time (see time conversion table for different time zones) for EUR/CHF. The return of the hour is assigned to the end point of the hour. 1.1: Years 2003, 2004, 2005, 2006. 1.2: Years 2007, 2008, 2009, 2010. 1.3: All years added. Vertical bars indicate RMS precision of the mean.

Fig.1 presents hourly "seasonal" averages of the hourly logarithmic return in EUR/CHF. This figure indicates that the daily movement may have bias as to the direction (up or down) depending on the hour, but the magnitude of the bias with respect to the typical broker spread in EUR/CHF means that this bias by itself has little practical meaning.

Last Updated ( Thursday, 10 February 2011 10:42 )