We look at charts chronologically generally. The typical chronicles the price path of a currency pair over the years and offer a great amount of technical information. However, you can view currency charts in another way; it is the seasonal fashion. Seasonality is the tendency of a currency to top or bottom or fall or rally at specific points during the year.
Instead of viewing the previous fifteen or thirty years of currency data chronologically, you can take each year and put it on top of each other. This way, all thirty years are averaged and set to an initial value offering a line showing how the currency acts on average between January and December over the last thirty years.
Seasonal Patterns for GBP/USD
Look at the chart below. You can see the Pound futures, and by extension, the GBP/USD seasonal patterns can be observed. Hence, you can use this information for both the forex and futures markets.
In the chart, you can see the tendencies of the Pound through the last five, ten, and fifteen years. Every average provides a different line, but you can still find similarities in the three averages –
- Generally, the Pound forms a bottom between early March and late March. After that, at the end of April, it moves higher.
- Usually, the time from early May to mid-May is bearish.
- You can see a bottom typically forming again during mid-May and it will move higher again during early August.
- The peak of price can usually be seen early in August and the decline occurs in early September.
- After October, the averages diverge with the short-term (five-year) and the do not provide the same information as the longer-term (ten-year and fifteen-year) secondary averages. Thus, seasonal tendencies become less concise and less reliable during this time.
- Averages re-align and form a top during early November. The price slides between mid-November to late November. Then, you can see the averages to diverge again.
Seasonal Patterns for EUR/USD
You can see the seasonal pattern of Euro futures in the chart below and by extension, the EUR/USD can be observed.
In the chart, the tendencies of the Euro over the last five, ten, and fifteen years can be seen.
After looking at the tendencies of Euro futures, it is possible to isolate times that are possibly strong or weak for the EURUSD –
- The Euro usually forms a bottom in mid-February. After that, during mid-March, it moves higher. Then, another pull back takes place and you can see another climb at the end of April.
- You can see the next low in June. It climbs again during late July / early August.
- There is typically a decline starting from early August that remains until early September.
- Early September to late September is a great time for the Euro, and then it generally sees a decline in early October.
- Out averages diverge after October. It means that the signals are less concise and less reliable.
Seasonal Patterns for AUD/USD
Look at the chart below to see the pattern of Australian Dollar futures providing us with the AUDUSD forex seasonal patterns.
In the chart, you can see the tendencies of the AUD during the last five, ten, and fifteen years. You can find commonalities in all three averages even when each one provides a different line –
- Typically, the AUD turns higher from early March to mid-March and resumes going higher during the early part of May.
- After the AUD corrects in May, it usually bottoms out again in late May. You can see it moving higher at the end of July.
- The time between early August and late-August is usually bearish for the AUD.
- November is also a bearish month for the AUD generally.
- December rallies often take place.
Seasonal Patterns for USD/JPY
You can see the JPY or Yen futures in the chart below. Since traders trade the Yen futures relative to US dollars, you may use patterns noticed in the futures for trading USDJPY seasonal patterns. You can use this information in both the futures and forex market.
Yen futures move with JPYUSD forex pair. Most traders see this pair the other way, so, the direction of USDJPY is opposite of Yen futures. When Yen futures rally, USDJPY fall, and vice versa because the USD gains strength against JPY.
5, 10, and 15-Year Seasonal Patterns
We can see the consistent USDJPY seasonal patterns in the seasonal chart of Yen futures below. Keep in mind that these are Japanese Yen futures. So, a bearish time on this chart indicates the upcoming rise of USDJPY.
20 and 30-Year Seasonal Patterns
To be more thorough, we can use more data to ensure that the short period (5, 10, 1nd 15 years) USDJPY seasonal patterns align with the longer-term (20 and 30 years) USDJPY seasonal patterns. Again remember that these are Japanese Yen futures. So, a bullish month such as April indicates the upcoming decline of the USDJPY.
Trading the USDJPY Seasonal Patterns
After viewing the tendencies of Yen futures, we need to look for the most reliable moves across any timeframe. Hence, we will only find seasonal patterns that take place on all 5, 10, 15, 20, and 30 years’ timeframes. We need to leave out small moves and minor fluctuations, even though some of them appear across the time frames constantly.
Judging from the points mentioned above, we can isolate a few times in the year that are potential turning points. To understand it better, first, let us look at the dominant tendencies of the Yen futures, as displayed in the charts above. Next, the tendencies can be flipped around so we can use them to trade the USDJPY.
Conclusion
Seasonality is not a tool for using it on its own. You should combine it with price pattern analysis to decide entry and exit points. Seasonality offers windows of time to us where we can view the trend reversals. This way, we can be more confident about a price pattern indicating a reversal.