There is two main type of trading sentiments tends to float in the Forex market the one is U.S. Dollar supportive and the other is against U.S. Dollar or we can say that there are two major types of traders in the Forex market pro-dollar traders and anti-dollar traders. As the majority of the volume in the Forex market is carried by the major currency pairs. Traders not only studies the individual pairs but they also keep in mind the movement of the U.S. Dollar in order to predict the market. Almost all the traders analyze the movement of the dollar to get an idea of the future direction of the U.S. Dollar. However, the market tends to move in a cycle and the time of year also plays a role in the movement of the U.S. dollar. This movement in the market is called the seasonality effect or seasonal trends the best way to analyze past price behavior is to analyze the price movement very closely and also consider the previous trends and movements it followed in the past at the same time duration.
In Forex market Seasonality usually spotted as a predictable change in the movement of the pairs due to the movement in the U.S. dollar tends to repeats every year at the same time period. However, there isn’t a full surety that the seasonal movement will happen again in the market but taking into account the movement which happens almost every year increases the reliability of the seasonal trends.
In this blog, we are going to discuss the various months where the market and the movement of the U.S. Dollar tends to move in a certain direction because of the cyclical change in the market condition.
JULY: THE MONTH OF USD/JPY
The movement of the USD/JPY in the month of July is one of the strongest expressions of seasonality as the month of July is stayed positive for the USD/JPY pair almost 70% of the time according to the price analysis. Majority of the time the pair USD/JPY tends to end the month of July on a positive note. However, it is difficult to find the exact trigger which makes this phenomenon possible but this seasonality trends in the month of July and October is very strong. A trader should keep in mind this seasonality trends in order to get the highest possible profits out of the market and to also avoid opening any positions which go against the market trend.
AUGUST: USD/JPY GAINS MADE IN JULY ARE OFTEN ERASED
The USD/JPY pair is a very strong seasonality follower August also shower a strong seasonality trend in USD/JPY. Not only in USD/JPY pairs but also the other cross currency pairs related to the JPY tends to take a turn the month of August as in this time of the year the Yen tends to be strong across the board in the month of August in over 70% of times which makes the reliability of this seasonality pattern even stronger. JPY tends to erase the majority of positive movements it made in the month of July in August due to the strong Yen.
MAY: A NEGATIVE MONTH FOR THE USD/CAD
Same as the USD/JPY the cyclic factor in USD/CAD can be seen in the month of October and November where the pair usually trades with negative sentiments which results in a bearish month of October and November most of the time. This seasonal movement in the USD/CAD is very prominent a trader should always consider this factor in order to achieve success in the Forex trading.
Traders can use the seasonal trends to improve their Forex trading as it is a very strong and useful tool which can make a huge difference in the profit potential of trades. A seasonal trend not only affects the USD/JPY and USD/CAD but they are also present in much other currency pairs and a trader can use this knowledge along with fundamental and technical analysis to ensure profitable trades.
A long-term trader can use seasonal trends and enter at a technical level and hold a position until the end of the season in the direction of the same trend to make huge profits by keeping the risk under control or even eliminate the risk after few days of positive movement with the help of trailing stop loss. However seasonal trends are also not 100% sure signal as the market tends to change the movement and sometimes do not follow the seasonal trends due to various market factors.