We usually look at charts in chronological order, day after day, week after week, and year after year. General charts describe the price 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 look at currency charts, and that is to look at them in seasonal fashion.
So what is Forex Seasonal Pattern or Forex Seasonal Chart? For us, seasonality is the tendency of a currency to move up or down at certain points in a year (in products it may occur during the season of the year).
Instead of looking at the currency data for the last 15 years in chronological order, what would happen if you took it every year (January to December) and put it on top of each other every year. All 15 years are then averaged and an initial value of 100 is set to provide a line that shows how the currency averaged over the last 15 years between January and December. Will the average show a Forex seasonal pattern where EUR / USD, for example, usually rises in certain months or falls in others?
Below we see the EUR / USD seasonal pattern.
EUR / USD seasonal patterns
From the trends of Euro Futures and USD Index we can see that EUR / USD will rally during Euro Strength and Dollar Weakness, and EUR / USD will decline during USD Index Strength and Euro Future Weakness.
From these factors we can isolate several times a year which is probably the turning point:
- EUR / USD typically drops from mid-February to mid-March and then rises in mid-March, then retreats slightly and then continues through April
- The EUR / USD may fall in mid-June and then rally from mid-July to the end.
- EUR / USD depreciates from early August to mid-September
- The EUR / USD usually rises from mid-September to the end of September.
- Seasonal factors are not articulated from October to the end of the year and thus cannot be traded reliably.
Seasonality is not a tool to use on its own, but should be combined with price pattern analysis to determine entry and exit points. Yet the season gives us a window of time where we can look for trend reversals and feel more confident if we see a price pattern that points in the opposite direction during the seasonal windows given above.
The EUR / USD may deviate from its seasonal pattern in any given year, so do not fight the market if it does not move as expected. Menstruation is an average or a trend, not a rule.