We usually look at the graphs in chronological order, day after day, week after week, and year after year. The typical chart describes the price trajectory of a currency (pair) over the years and can provide a lot of information for forex technicians using it. However, there is another way to look at currency charts, and that is to look at them seasonally.
So what are seasonal currency patterns or seasonal currency charts? For our purposes, seasonality is the tendency of a currency to go down or up at certain times of the year (in commodities this can happen with the seasons).
Instead of looking at the last 15 years of currency data in chronological order, what if you take each year (January to December) and we could put one on top of the other each year. It is then averaged every 15 years and set at an initial value of 100 to provide a line showing how the currency performs on average between January and December, over the last 15 years. Will the average show a seasonal currency pattern where the EUR / USD, for example, generally rises in certain months or falls in others?
Next, we analyze the EUR / USD seasonal patterns.
EUR / USD seasonal patterns
If we look at the trends of the futures of the euro and the USD index, we can see that in times of strength of the euro and weakness of the dollar, the EUR / USD will increase, and in times of strength of the index USD and weakness of the euro futures, the EUR / USD will decrease.
From these factors we can isolate a few times a year that are probably turning points:
- The EUR / USD usually hits bottom in early and mid-February and then rises in mid-March, then retreats a bit and then continues to rebound until April
- The EUR / USD is likely to fall in mid-June and then rebound in mid or late July.
- From early August to mid-September, the EUR / USD falls
- From mid-September to the end of September, the EUR / USD tends to recover.
- From October to the end of the year, seasonal factors are not so pronounced and therefore cannot be negotiated reliably.
Seasonality is not a tool to use on its own, but must be combined with price pattern analysis to determine entry and exit points. However, seasonality provides us with time windows where we can observe trend reversals and feel more secure if we see a price pattern that indicates an investment during the seasonal windows listed above.
In any given year, the EUR / USD may deviate from its seasonal patterns, so don’t struggle with the market if it doesn’t move as expected. Seasonality is a mean or trend, not a rule.