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Seasonality analysis is arguably a method more familiar to equity traders, with terms like ‘January effect’, ‘Santa Rally’, and ‘turn-of-the-month effect’ often cited in the explanation of the price movements within equity markets. But seasonality can also be found within the forex market, as with technical analysis, statistical significance rises when large numbers of traders are harbouring the same expectations.
Trends in the forex market
Examining seasonal trends in the forex market brings forth some of the most traded currency pairs and a variety of interesting phenomenons. Some of these seasonal trends are supported by fundamental reasons.
US dollar in May?
Historical data on the USD index shows that it has mostly gained in the month of May, rising nine times out of ten in the ten years to the end of 2016. Expanding the sample size to thirty years (between 1987 and 2016), a regression test would suggest that this remains the case with an almost 90% confidence level. One fundamental explanation for the trend is the seasonal improvement in economic momentum going into each second quarter in the US, supporting a strengthening of the US dollar against other major currencies.
USD index seasonality chart