Learn the times of the year when the EURUSD and Euro FX futures tend to do well and poorly, based on historical tendency.
Normally we look at charts in chronological order, day after day, week after week, and year after year. These typical chart types show the price path of a currency over the years and provide a lot of information for technicians to use. Yet there is another way to view currency charts, and that is to look at them in a seasonal fashion.
A seasonal chart shows the tendencies of an asset to move higher or lower, or peak and bottom, at certain times of the year.
Instead of looking at the last 15 years of currency data in chronological order, what if you took each one year period, January to December, and printed it on a transparent slide. Then, put each year on top of each other. Doing this would highlight any period of the year which tend to be strong or weak. Luckily, we don’t need to do that. We can just take an average of the last 15 or 20 years to show what tends to occur at different times of the year (also see S&P 500 Seasonal Trends).
Below we look at the pattern of Euro FX futures which will also aid in trading the EURUSD forex pair.
Euro Seasonal Patterns
The Euro has seasonal tendencies, and we can see them by looking at the following seasonal chart of Euro futures, which are traded relative to the USD.
Euro Seasonal Chart- 15 and 20 Year
The chart shows the tendencies of the Euro over the last 15 and 20 years.
- The Euro typically forms a bottom in late February and then moves higher into mid-March.
- A pullback occurs, then we see another climb into the end of April.
- Another low in late May with an upward tendency into mid-June.
- Between mid-June and early July there is a choppy tendency to the downside.
- Upward tendency from early July to early August.
- Usually a decline from early August to early September.
- Starting in early September is a good time for the Euro heading into mid-October.
- Mid-October through late November is typically a bearish time.
- Bias toward the upside late in the year.
The chart below provides a more general guideline of which months tend to be good or poor for the EURUSD. As noted above, some pretty big moves start early, in the middle, or late in a month, so the prior chart is more detailed in that regard.
The chart below provides other information though. The number on the top of the column shows how often (%) the price moved higher in that month over the last 20 years. The number at the bottom of the column gives the average percentage rise or decline.
While this chart is a more general version of the chart above, it essentially shows the same data, just in a different way.
Things To Be Aware of With EURUSD Seasonality
Seasonality is not a tool to be used on its own, but rather should be combined with current price analysis to determine entry and exit points.
Seasonality provides us with windows of time where we can watch for trend reversals and feel more confident if we see a corresponding price pattern during the seasonal windows provides above. We may also feel more confident riding a trend that aligns with the seasonal patterns.
It is important to keep the overall trend of the current market in mind. In uptrends use seasonal low points to buy. In overall downtrends use seasonal high points to get short or to sell. Don’t fight a current trend just because the seasonal pattern says the price should be going the other way. As can be seen from the second chart, most months are only slightly favored to move one way or the other.
No matter what the seasonal tendency is, always manage risk. In any given year the price can deviate from the tendency, resulting in large losses if you trust the historical data blindly. Use stop loss orders and control position size to manage risk.
Using seasonality is not a requirement for successful trading, it is simply a tool that swing traders may opt to use if they feel it helps them.
By Cory Mitchell, CMT
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