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CHF EUR GBP Calendar Trading
Patterns
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.
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The Essentials of Trading
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