CHF, EUR, and GBP
Calendar Trading Patterns

by John Forman

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Trading Forex Calendar Patterns for Profit

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Technical analysis can be thought of as the observation of fundamental forces playing themselves out in terms of price action. For the most part, this is done by reviewing chart patterns and/or indicators in an effort to glean forward expectations based on past behavior. Some price patterns, though, are less easily noted by looking for flags, overbought readings in RSI, or moving average crossovers. They come from the study of raw prices, which can be considered to fall in to the category of quantitative analysis. It is just this sort of research which led to the identification of certain patterns of behavior in the foreign exchange (forex) market. (Note: The charts and data in this article come from the Anduril Analytics research report Opportunities in Forex Calendar Trading Patterns.)

This particular article focuses on observable trading patterns in European currencies, ones based on the calendar. There is some hesitancy to refer to them as “seasonal” patterns, as one would with commodities, for the simple reason that they are not based on some kind of easily discernable pattern of supply creation. Currencies do not have planting and harvesting cycles, after all. There clearly are, however, supply and demand influences at work, often those related to international trade transactions, and these forces can be observed in the way prices act at certain times.

Before digging into the actual numbers, it should be noted that the analysis presented here is based on data going back to 1999. This particular data set was selected because it represents the effective life of the Euro, which began trading at the start of that year. It is possible to get pre-1999 prices for Euro-based pairs, but they are synthetic and not based on the realities the market. The introduction of the Euro represented a fundamental change in the structure of forex system, making price action over the last six years more significant to future trading than pre-1999 data.

Sterling
Against the USD, the Pound has two months in which it has shown a notable directional tendency. They are September and December, as can be seen in Figure 1. In the case of the former, GBP/USD has risen six of the last seven years, averaging an increase of over 230 pips for the month in that span. Actually, 2005 broke a string of twelve consecutive September gains in the pair.

December is even more impressive, as the Pound has increased against the Dollar every year since the Euro launched. Over that period, GBP/USD averaged a gain of more than 350 pips per month.

The months of May, August, and November have all been biased to the downside for Sterling against the Greenback, all having seen a drop in GBP/USD for five of the last seven years. In all cases, while there have been some significant falls, there has also been quite a bit of volatility too. That makes for somewhat more difficult trading conditions.

Euro
The pattern of behavior in the Euro varies a bit from that of the Pound. This can be seen by comparing Figure 2 to Figure 1. Against the USD, the EUR tends to start the year off weakly. In six of the seven Januarys since 1999, EUR/USD has fallen at an average rate of about 200 pips. On four occasions the drop was 400 pips or better, but there were also two sub-100 pip declines in the mix, not to mention the one rise, so the results are all over the place.

March and October have both seen the Euro fall five times out of seven, and September has been positive at a similar ratio. In the case of March, where the average drop has been over 140 points, the pattern is fairly consistent. Even the contrary observations were not overly positive. Neither October nor November, however, demonstrated quite as stable performance. In the former case the average drop is about 100 pips, while for November the rise has average about 65 pips.

Swiss
One would expect the Swiss Franc to shows a similar pattern of price behavior to the Euro, but this is not always the case, as demonstrated in Figure 3. While it is true that the CHF tends to fall against the USD in January, just like the EUR, it has leaned more toward GBP-like action in other months. Specifically, USD/CHF has been more consistently weak (CHF strength) in the month of September, declining six of seven years at an average clip of 230 pips. As in the case of Sterling, 2005 broke a long string of consecutive years during which the Franc rose against the USD, in many cases quite significantly.

December too has been more CHF positive than EUR positive. The ratio of up to down years is 5 to 2, but it is the way in which that has developed which is very interesting. The average loss for USD/CHF over that span is more than 360 pips, but a great deal of that came in the form of two years during which the market dropped more than 1000 pips, and there was another one when the December decline was better than 500 pips. The remaining years were all significantly less volatility, including those when the CHF was weaker.

July and October both have seen USD/CHF rise five out of seven times. Although in the latter case the average has been about 100 pips, neither really demonstrates a strong, consistent performance which excites one with trading enthusiasm.

Crosses
There are also patterns of behavior in the cross rates between these currencies. Perhaps the most significant is in GBP/CHF, which as dropped in November for six straight years. Over that time, the CHF has averaged a gain of over 400 pips per month against the GBP. As it to be expected, EUR/GBP tended to rise over that timeframe as well (Euro strengthening), but only five of the last six years, and at an average of 100 pips a year.

GBP/CHF has risen four straight Januarys and fallen four straight Mays. In both cases, the moves have been largest of late. The last two GBP/CHF gains in January added up to over 1200 pips, and the last three May declines were for over 500 pips each. That is definitely something worth trading!

In terms of EUR/CHF, there are not a great many clear patterns. The one that sticks out the most is June, which has witnessed gains in four of the last five years. Truth be told, though, the increases were not overly impressive. Yes, the average was over 80 pips per month, but that is the result of two strong months rather than a consistent performance.

Trading this Information
Obviously, the simplest of approaches to trading on forex calendar patterns is to take a buy-and-hold or sell-and-hold position whereby you enter at the start of the month and exit when it is over. Had a trader been long GBP/USD every December since 1999, he/she would have made over 2500 pips. That means one who had bought a 100,000 GBP position each time would have made over $25,000 on trades which would have required a margin deposit of $3,000 or less. That’s a fantastic return! If compounding of returns were considered, it would be substantially higher.

Of course, patterns change, or are not as reliable. That means a enter-and-hold approach does put one at risk of taking a loss should the market not go the way it has done in the past. For example, a buyer of GBP/USD in September of 2005 would have suffered a loss of over 200 pips, even though the market had risen so many consecutive times prior to that. That demonstrates the need to maintain good risk discipline and not toss it all out the window because the pattern is so persistent.

Also, there can be quite a lot of intra-month volatility. Just because USD/CHF rises fairly consistently in January, it does not mean that along the way some substantial draw downs do not occur. In the stronger patterns, those contrary moves are often fairly inconsequential, but not always. This can put one’s margin position under pressure. At the same time, however, it can present trading opportunities for those who take a short-term approach.

Imagine a swing trader who knows that EUR/USD is prone to fall in January. That is very handy information for setting a bias. Such a trader can be more aggressive in looking for potential short-term tops in the expectation that the market will drop, or that break-downs through support are less likely to be fake-out moves. Nimble short-term traders can move in and out of positions going in the direction of the bias to grab nice profits with relatively low risk.

Conclusion
Knowing the patterns of behavior in price is something of clear value to any trader. This article has touched on just a few that exist in the forex market from a monthly perspective. There are more in other currency pairs, and in other timeframes (and for that matter, in other markets). The trader who is aware of them at a minimum has the opportunity to improve her/his understanding of the risks in taking on certain positions, not to mention generating increased trading profits.

Keywords: currency, forex, foreign exchange, seasonal, calendar, Europe, European, trading

About the Author

John Forman is the Managing Analyst and Chief Trader for Anduril Analytics, and the author of The Essentials of Trading. He is a near 20-year veteran of the markets. John has traded just about everything, has worked as an analyst in the foreign exchange, fixed income, and energy markets, and has published literally dozens of articles on market analysis and trading methods. He is a contributor to Trading Markets and the former Content Editor for Trade2Win, a trader support web site with over 50,000 members, where he interacted with active traders from across the globe.

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CHF, EUR, and GBPCalendar Trading Patterns

CHF, EUR, and GBP
Calendar Trading Patterns