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Seasonality in Foreign exchange investments

In trading the currencies, a trader usually makes a decision of becoming anti dollar or pro dollar. The US dollar is a component that makes up ninety percent of the entire transactions of currencies in the market. For a long time now it has been the main driver of the many fluctuations that happened. Most of the traders analyze the dollar's direction in the future through the use of technical analysis or fundamental analysis. They sometimes also use the combination of the two kinds of analysis.

There is one thing that most of the traders fail to realize and that is that the timing can also become a major factor of the US dollar's behavior towards the other currencies in the market. Using indicators is the way to analyze the previous activities of the prices and this is what studying the technical analysis means. There are several variations of technical indicators because there are also multiple ways of doing a technical analysis.

Still most of the traders fail to realize that there isn't a much better way to study the previous behavior of the prices than to analyze the activity of the prices without having to use any indicator. When traders realize this, they find out that the season becomes a factor for the price activity for some of the currencies which are paired.

The seasonality means that there is a time each year when a predictable event repeats at similar periods of time. Like the fact that for the past decade there has been eight times that the U.S. dollar appreciated over the euro every January .The US dollar also rose above the Japanese yen. Even if these patterns in history come without a guarantee of repeating, the fact that it these patterns have occurred again for at least ninety percent truly makes a statistical significance. This kind of information can be very helpful for a trader.

July is a good month for the US dollars against the Japanese yen. There is no solid reason why the USD-JPY acts this way but it could attributed to the fact that it is the end of Japan's initial quarter or to the fact that it is the start of the United States second quarter. Anyhow this is a piece of information worth noting and remembering.

Each August there is also a presence of seasonality for the US dollar and the Japanese yen. There is a likelihood that a great portion of profits made in July will get erased by August because it is the month which tends to be the strongest time for the Yen. The other currencies usually tend to fall versus the Japanese currency.

There is a presence of seasonality for the month of January for the pair of the Euro and the US dollar. For eight times over the past decade, the US dollar has prevailed each January. Many funds and companies usually send back money to their local nation at the final leg of each year for their balance sheets and then at the start of the year, money will be sent back abroad to start more investments.

Implication The concept of seasonality can be used in improving a trade because a trader can choose to adapt the direction of the season's trend rather than making use of technical analysis and fundamental analysis for purchasing currencies. A trader can cut the holding time particularly for the months with the presence of seasonal trends.