Forex Seasonality & The “Year-End Effect”

Forex seasonality is the term used for the tendencies that certain currencies might have exhibited to move in particular directions at certain times of the calendar year. Are there any seasonal patterns that have influenced Forex markets? For example, if the U.S. dollar shows a tendency statistically to increase in value during the month of March across a sample of many years, then we could say it has a seasonal tendency. Many studies have been done investigating Forex seasonality, although you might wonder whether it is worth it. In this article I am going to look into whether there has been any seasonal behavior of currencies exhibited from a study of the last 36 years of historical data, and explain what any such tendencies might plausibly be caused by. I will conclude by explaining the weaknesses of such studies and question whether these results are valuable and if so, how they might best be utilized by Forex traders as a seasonal forecast in order to make a profit.

Seasonal Forex Tendencies

If we look at a fairly large sample of data, we may be able to identify some seasonal currency behavior. The largest data range available to me was looking at the US Dollar Index and the more major other global currencies against the U.S. Dollar over a period greater than 35 years. Several seasonal tendencies could be identified quite clearly.

The U.S. Dollar Index tends to perform strongly in January, and falls in a pronounced manner during the final quarter of the year, in fact from September.

The Euro, British Pound and Swiss Franc behave in a nearly identical manner, and in the mirror image of the U.S. Dollar Index: they perform poorly in January, then rise from September through until the end of the calendar year.

The Japanese Yen rises from August to October. It tends to perform most poorly in January and best in September.

The Canadian Dollar is more erratic, performing most poorly during the months of July and November, and most strongly during June.