We’re in the middle of July. I think July is an important month because it highlights some of the strongest seasonal occurrences in the Forex Markets. That is the fact that, in 9 out of the last 11 years, the USD/JPY and USD/CAD Forex Currency Pairs have ended the month of July higher than they started it. That’s a pretty high percentage of the time. Such numbers are important and should be a factor you consider when planning your trades.
There is just so much to look at when you are trading, it’s sometimes a bit overwhelming. I mean there you are, checking out news updates, looking at your Ichimoku indicators and doing your Fibonacci Analysis. It’s hard to work out where things are going, even with all of these tools, particularly in such an environment as we have now with the crisis throwing everything off balance. Now, we have something else that has to be examined. Man, making money is hard.
So, why do these Seasonal Effects occur and how can we profit off them? Look at the examples I mentioned above; USD/JPY and USD/CAD. For the Yen, it is quite hard to explain exactly why this occurs…it might have something to do with the calendar (e.g. July is the end of the first quarter in Japan). For the Canadian Dollar, a similar problem exists…there seems to be no single reason why it happens that way. The GBP/USD Currency pair usually does very well in September. Some think this might be due (at least to some extent) to the traders returning from the August Summer Holidays. Still, working all of this out…it doesn’t always add up. It’s puzzling.
However, seasonality is one of those things you don’t have to spend too much time trying to figure out. Just use it. For instance, if we know that in the month of July, the USD/JPY pair “tends to” gain in value, then we would be a bit more careful of entering longer term Sell trades with that pair. Right now, the Yen is exhibiting some strength because of all the uncertainty we have had coming back into the markets. While this is happening for a perfectly good reason and should be played for profit, you would do well to note that we still have a substantial amount of July left. There is plenty of time for the Dollar to turn the tables on the Yen.
All of that, just so it can be lost again. What do I mean? Well, the month of August is typically a very good month for the Yen. In most cases, all the gains made by the Dollar (and others such as the Euro and Pound) tend to be wiped out in August. The Yen comes back strong usually. Other seasonal trends to note: The commodity currencies (Canadian, Australian and New Zealand Dollars) tend to lose value in July, the US Dollar gains in January.
Once again, seasonality is just another tool to be added to the box. It shouldn’t be the sole basis for the trades you make, but it should be considered to help work out just how risky certain trades might be. We’ll see how this particular July in 2009 eventually turns out…exception or rule.