Normally we look at charts in chronological order, day after day, week after week and year after year. The typical chart chronicles the price path of a currency (pair) over the years and can provide a lot of information for forex technicians to use. Yet there is another way to view currency charts, and that is to look at them in a seasonal fashion.
So what are forex seasonal patterns, or forex seasonal charts? For our purposes, seasonality is the tendency of a currency to bottom or top at certain points in the year (in commodities this can occur with the seasons of the year).
Instead of looking at the last 15 years of currency data in chronological order, what if you took each year (January to December) and could put each year on top of each other. All 15 years are then averaged and set to an initial value of 100 to provide one line which shows how the currency acts on average between January and December, over the last 15 years. Will the average show a forex seasonal pattern where the EUR/USD, for instance, generally turns higher in certain months, or turns lower in others?
Below we look at the EUR/USD seasonal patterns.
EUR/USD Seasonal Patterns
From looking at the tendencies of Euro futures and USD Index we can see that at times of Euro strength and Dollar weakness the EUR/USD will rally, and at times of USD Index strength and Euro futures weakness, the EUR/USD will decline.
From these factors we can isolate a few times in the year which are likely turning points:
- The EUR/USD usually bottoms in early to mid-February and then heads higher in mid-March, then pulls back a bit and then continues to rally into April
- EUR/USD is likely to put in a low in mid-June and then rally into mid to late July.
- From early August to mid-September the EUR/USD falls
- From mid-September till the end of September the EUR/USD usually rallies.
- From October into the end of the year the seasonal factors are not as pronounced and thus not reliably tradeable.
Seasonality is not a tool to use on its own, but rather should be combined with price pattern analysis to determine entry and exit points. Yet seasonality does provide us with windows of time where we can watch for trend reversals and feel more confident if we see a price pattern that indicates a reversal during the seasonal windows provides above.
In any given year the EUR/USD can deviate from it’s seasonal patterns, therefore, don’t fight the market if it is not moving as expected. Seasonality is an average or tendency, not a rule.