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After taking it easy during the December holidays, forex trading activity seems to be off to a roaring start for the year as institutional volumes hit record levels. Could this just merely be an offshoot of the so-called “January Effect” in the FX market or is this a sign of stronger metrics to come?

Stock traders often look out for the “January Effect,” which refers to a seasonal increase in prices at the beginning of the year spurred by positions being reopened after booking profits towards the end of the previous year. Some say that this also has a lot to do with investor psychology as many believe that January is the best time to start working on their finances, getting back in shape, or starting a new diet.

Last month’s metrics from institutional trading firms seem to support this hypothesis, as ECN Hotspot FX started 2017 with 21.2% month-over-month gain in average daily volume (ADV) to $29.55 billion in January. This is also 10% higher than the previous year’s monthly average of $27 billion in ADV.

GTX, which is the institutional arm of Gain Capital Holdings, enjoyed $12.1 billion in ADV for January. That’s a whopping 32% gain over December 2016’s ADV and a 28% year-over-year increase. It also outpaces GTX’s best-ever ECN volumes of $10.3 billion in November last year.

Meanwhile, forex ECN FastMatch printed a 23% monthly gain in volumes to $17 billion for January 2017, just a notch below the elections-driven November 2016 ADV of $17.1 billion. This figure is 34% higher than their average monthly volume of $12.7 billion for the previous year.

Data from the Tokyo Financial Exchange
Data from the Tokyo Financial Exchange

On the flip side, the Tokyo Financial Exchange didn’t seem to pick up on the rise in trading volumes as Click 365 Exchange FX margin contracts saw 4.4% month-over-month decline from December and a 26.8% slide compared to the same month a year ago. The monthly drop was evident in most yen pairs such as EUR/JPY, GBP/JPY, AUD/JPY, and NZD/JPY even while dollar pairs namely GBP/USD, AUD/USD, and USD/JPY had stronger volumes.

This probably goes to show that the “January Effect” in the forex market was mostly felt by the U.S. dollar, likely due to speculations about and reactions to the Donald’s regime. Indeed, the Greenback has more or less kept its selloff going for almost the entire month while the Japanese yen tossed and turned on surprise BOJ moves and jitters about bond yields. Sterling also chalked up a few decent moves in January, thanks to Brexit-related events such as Prime Minister Theresa May’s testimony and the U.K. Supreme Court ruling.

Moving forward, the Trump theme is likely to keep tossing the dollar pairs around for the next few months… or his entire four-year stay in the Oval. I’m thinking Brexit concerns could reclaim the spotlight sooner or later as fresh developments unfold and May’s Article 50 due date draws near. Any other potential drivers you’re seeing?