Currencies 'ARE NOT' seasonal

‘Currencies are not seasonal’ is something I regularly hear from traders when I talk about the subject, but are they right? In my interactions with other traders, everyone has always accepted that oil, for example, is seasonal, but a large number have struggled to accept that the same applies to the Euro or any other currency for that matter. If you are reading this and are one of those people, the chart below may come as quite a surprise.

The chart shows this market’s current price action (yellow line) has an 86% positive correlation with its 20-year seasonal pattern (orange line), making it on to our top 20 list of most correlated markets in the process.

But this isn’t a chart of oil, or wheat or even the S&P500, it’s CADJPY. It is tracking its pattern incredibly closely so far this year, with every major high and low occurring when you would expect as well as the direction in between. Interestingly, it also suggests we're in for a trend change very soon.

CADJPY seasonal chart

CADJPY is not the only currency pair following a predictable path. Many of the JPY pairs currently have very strong positive correlations with their seasonal averages. And of course, we have also seen other major currencies such as GBP, AUD, EUR, and the US Dollar, all forming major highs and lows this year, in line with their seasonal patterns. The dollar low on February 2nd, the high on March 16th, and the recent low on May 8th, are all perfect examples of this.

So, does that mean currencies are seasonal? 

Well firstly, I think that’s the wrong question. Currencies clearly are not impacted by weather or seasons but are subject or repeating periods of either greater supply or demand. So, if I said currencies have supply and demand patterns, most people would actually agree. Seasonality has evolved over the years and while this type of recurring pattern is still collectively known as seasonal patterns, supply and demand patterns would probably be a more accurate term for today’s markets.

One of the biggest lessons I have learned in trading is to not have any preconceptions and let the numbers and charts tell me what’s really going on. ‘Currencies are not seasonal’ is a great example of this. If the software tells me a market is following a predictable pattern, then it’s following a predictable pattern, regardless of what the market is. The software is much smarter than I am, so I’m not going to waste time arguing. 

Log in to check these patterns for yourself. Take a look at the top 20 strongest correlations on our seasonal dashboard and start preparing for the next predictable market move.

Happy trading

Ray Gilmour
Founder & Senior analyst at Markets Made