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As is the case with other markets such as commodities, forex demonstrates patterns of “seasonal” behavior which can be traded. These calendar patterns vary from pair to pair due to the dynamics of the currencies involved. In this article, the Yen (JPY) is the focal point, though there are similar patterns of action in other ares of the foreign exchange market.

Monthly Patterns

If one first takes a look at the market from a monthly perspective, it can be seen that USD/JPY and the JPY-based crosses have months in which they demonstrate clear tendencies. The figures below outline this. The graphs takesa month-by-month look at USD/JPY since 1999 (seven years total), which encapsulates the time since the launch of the Euro, an important watershed moment in the forex market. Each bar indicates the net up month to down month reading. For example, a reading of +5 indicates that there were 6 up years for that month as opposed to just one down year, out of the seven

A quick look at the chart indicates that there are a few months in which USD/JPY has been strongly biased in one direction or the other. The prime example is August, the month in which the market has been down every year since 1999. During that time, USD/JPY fell for the month at least 137 pips each time around, with most of the declines coming in at better than 200 pips. The average has been 320 pips, which translates to a move of 2.80%.

January and July also jump out. They have both seen USD/JPY rise in six of the last seven years. The results for July, however, are fairly unexciting. The market’s average rise has only bee about 35 pips, whereas the average increase for January has been nearly 200 pips.

In the case of EUR/JPY, as one might expect, August is a consistent down month, though there has been one up month since 1999. The average decline has been over 300 pips. November has been equally biased to the upside in terms of the 6:1 ratio, but the average rise is only 77 pips. The really interesting month, however, is December. The market rose every year from 2000 to 2004. Even though it fell in 2005, the cross has averaged a 350+ pip increase each year.

As with EUR/JPY, GBP/JPY shows very strong directional tendencies in August and December with an average drop of over 600 pips in August and an average gain of 435 pips to end the year. Sterling has an interesting tendency of its own in September, which is reflected in the cross with JPY for that month. Specifically, GBP/JPY has risen six out of seven years at an average rate of nearly 280 pips.