Usually we look at the charts in chronological order, day by day, week by week and year by year. A typical chart shows the price path of a currency (pair) over many years and can provide a lot of information for use by forex technicians. However, there is another way to view currency charts and it is to look at them seasonally.
So what is a forex seasonal pattern, or a forex seasonal chart? For our purposes, seasonality is the tendency of a currency to fall down or up at certain points in the year (in commodities, this can happen with the seasons of the year).
Instead, look at the currency data for the last 15 years in chronological order, and what if you take it every year (January to December) and you can bet every year on each other. All 15 years are then averaged and set to an initial value of 100 to give a single line showing how the currency is operating on average between January and December over the last 15 years. Will the average show the seasonal pattern of forex, if, for example, EUR / USD, as a rule, in certain months becomes higher, or in others – lower?
Below we will consider the seasonal structures of EUR / USD.
EUR / USD Seasonal samples
Looking at the trends of the euro and the dollar index, we see that in the strength of the euro and the weakness of the dollar, the EUR / USD will grow, and sometimes the strength of the USD index and the weakness of the euro / EUR futures will decline.
From these factors we can isolate several times a year, which can be turning points:
- EUR / USD usually declines in early to mid-February and then rises higher in mid-March, then diverges slightly and continues to rise in April
- EUR / USD is likely to decline to a low in mid-June and then increase to mid to late July.
- From early August to mid-September, the EUR / USD falls
- From mid-September to late September EUR / USD usually rises.
- From October to the end of the year, seasonal factors are less pronounced and therefore cannot trade reliably.
Seasonality is not a tool to use on its own, but rather should be combined with a price structure analysis to determine entry and exit points. Yet seasonality does give us time windows where we can observe reversals of trends and feel more confident when we see the price pattern that points to the reversal during seasonal windows presented above.
In any year, EUR / USD may deviate from seasonal schemes, so do not fight the market if it does not move as expected. Seasonality is an average or a trend, not a rule.