Time-of-day patterns in forex are surprisingly persistent and more relevant than ever

The flipper

Off and on throughout most of the years from 2009 to 2017, I ran a simple systematic strategy as follows:

• Long EURUSD NY afternoon and Asia time.
• Flip short EURUSD at Europe open.
• Flat in NY/LDN overlap.

And

• Short USDJPY in Asia time.
• Long USDJPY in NY time.

With fairly small positions, these things would pump out a couple of million dollars per year of P&L. They are not particularly scalable due to the short holding period, unfortunately, and perhaps this is part of why they never got arbed away.

These strategies have been around since forever, and Ranaldo (the SNB academic, not the soccer player) wrote about time of day effects like these way back in 2007. His study, which looked at the period from 1993 to 2005, concluded that currencies depreciate in the home time zone and appreciate outside the home time zone. Out of sample, things changed a bit as USDJPY used to rally in Japan but has been selling off in Japan time for more than 15 years now.

I bring all this up because time of day effects have been stronger than usual post Liberation Day as Asian central banks flee US assets. Here come the charts!

Note the cyan line flicking higher there. That might look like nothing, but when you’re looking at a series of cumulative daily returns going back 18 years and you can clearly see a jump at the end, that’s a big deal. Below is the same chart, but just 2025.

Here are the charts for USD/JPY:

I would bet this strategy will continue to work well. It is kind of mind boggling how consistent the Asia buying of gold and selling of USD has been. Even when it was obvious last night, it worked. As mentioned earlier, you can’t do the strategy in huge size or transaction costs start to become a problem. At smaller sizes, the efficiency of transacting at the BFIX creates very little friction.

Canada election

Canadians go to the polls next week, and while I think it’s a nothingburger for markets, I figured I would give it a quick mention. The election is April 28, and Carney has a huge lead. If he wins, it’s market neutral (as expected) while the vibe is that Poilievre winning would be a small CAD positive surprise as he might have a better chance of successfully fighting Trump’s tariffs. Also, the Conservatives would lean more towards tax cuts, which is theoretically stimulative, but the policy differences are not big enough to matter all that much.

What am I missing?

This tweet suggests major supply chain issues on the horizon. It seems right to me, and it’s consistent with concerns expressed by the leaders of TGT and WMT. If you think it’s wrong, I would be keen to hear your reasoning because we are living in unique times here and it’s hard to predict what impact a trade embargo with China might have. 

In case you can’t get Twitter at work, here’s the tweet:

The White House has put itself and the country in a bad situation but doesn’t realize it yet.

Around April 10th China to USA trade shut down. It takes ~30 days for containers to go from China to LA. 45 to Houston by sea, 45 to Chicago by train. 55 to New York by sea.

That means that there are no economic effects of what was done on April 10th until about May 10th.

Around that time (it’s already started to happen) trucking work is going to dry up. Warehouses will start doing layoffs because no labor is needed to unload containers and some products will be out of stock, reducing the need for shipping labor. All this will start in the Los Angeles area. After about 2 weeks, it’ll start hitting Chicago and Houston.

Let’s say the White House, after 3 weeks, changes its mind, on May 31st.

“This isn’t working out like we thought it would. Tariffs back to 0.”

Let’s say China says “bygones be bygones, we’ll go back to how things were”. Let’s say every factory in China that got screwed by their orders being cancelled says the same thing “no problem, we’ll make and ship”.

The problem is, even under the most favorable conditions of China and the factories restarting economic ties as though nothing happened, it will be at least another 30 days before economic activity is revived.

And that’s just in LA.

In Chicago/Houston, you’ll need to wait another 45 days.

New York, at that point, will still be getting containers from before April 10th, they will then have 50 days (May 31 minus April 10) of zero economic activity at the ports, in trucking of Chinese goods, in warehousing.

The whole situation is a bit like lockdowns. Once you shut down, it takes a long time to get economic activity back to where it was, if you ever can.

And again, this assumes, that China and its factories, which make things you can’t buy elsewhere, will start right back up again as though nothing happened, which is unlikely.

It’s almost like we’re speeding towards a brick wall but the driver of the car doesn’t see it yet.

By the time he does, it’ll be too late to hit the brakes.

There was a point in 2007 when it seemed kind of obvious bad stuff was coming, and we had the same deal in February 2020. Just because it’s obvious doesn’t mean it’s wrong. The president’s attempts to blackmail a cohort of countries into ganging up on China isn’t working.

Final thoughts

Silver was up 3.3% yesterday and gold was down 2.7%. That’s not something you see every day. In fact, it has happened only thrice since 1980. October 13 and 18, 2008 and February 3, 1998. No predictive value, just mentioning it because it’s weird. Meanwhile, gold continues to rally in Asia (see chart here, via another beautiful xls built by Justin Ross), and those far-fetched rumors of a gold-backed CNY strategy get a little more believable each day.

Yesterday I mentioned that 5470/5500 must hold in cash SPX for the bears to remain in control. The high was 5470. Normal bear markets need constant bad news to continue, but this one just needs no change in policy trajectory. In other words, the path of least resistance is lower stocks and lower USD until something changes, but the convexity is to the topside because of headline risk. This is also opposite to normal—usually stocks go down fast and up slow.

Also yesterday, I was discussing how the alternative hypothesis is a good thing to consider because the consensus is often (but not always) wrong. Remember going into 2025, the number one theme in the investment bank outlooks was dispersion of equity returns.

How it started:

How it’s going:

I’m not picking on the two banks there. Pretty much every single bank forecast equity dispersion as the number one theme for 2025. Have a Blue Horseshoe kinda day.