How Seasonal Trends Effect FX Markets?
Most forex traders analyze and predict the future direction of currencies using fundamental or technical analysis. The craftier among them use the combination of both to predict direction of forex markets.
Fundamental analysis studies the long term effect of economic forces on currency markets whether financial or socio political using various economic indicators. Technical analysis is based on the premise that all available information is already compounded into the prices and the future prices can be predicted based on past prices.
If you have been trading stocks, you must be familiar with the term: The January Effect. It has been observed over a long period of time that stocks tend to perform very well between the last week of December and the first week of January.
The explanation of the January Effect is simple. During the last few days of the year, many investors are concerned about their tax returns. They try to realize capital gains or losses to file their tax returns. Many corporations also use the end of the year to face lift their balance sheets favorably at the end of the year.
Seasonality is not peculiar to the stock markets. In fact forex markets also tend to exhibit strong seasonal effects. Seasonality can be defined as a pattern that occurs at a particular period of the year.
The January Effect also takes place in forex markets because most of the investors who are liquidating their stock positions try to convert their local currencies into dollars at that time.
However, dollar shows stronger January Effect in some currency pairs as compared to others. There is a summer effect also. It has also been observed that dollar shows a summer seasonality when it tends to rise in USD/JPY pair and USD/CAD pair in the month of July and give back its gains by August.
There are many seasonal patterns in currency pairs that have been studied in other parts of the year. Now, it does not mean that you should take these effects blindly and trade based on them.
Seasonality only shows that there are strong chances that during a particular time of the year, the chances of a particular currency pair going up or down are more.
In some years, the effect may be pronounced. In others, not so pronounces. As a forex trader, you should keep these seasonal effects at the back of your minds while trading during that time of the years. You need to just understand these seasonal patterns. - 23199
Fundamental analysis studies the long term effect of economic forces on currency markets whether financial or socio political using various economic indicators. Technical analysis is based on the premise that all available information is already compounded into the prices and the future prices can be predicted based on past prices.
If you have been trading stocks, you must be familiar with the term: The January Effect. It has been observed over a long period of time that stocks tend to perform very well between the last week of December and the first week of January.
The explanation of the January Effect is simple. During the last few days of the year, many investors are concerned about their tax returns. They try to realize capital gains or losses to file their tax returns. Many corporations also use the end of the year to face lift their balance sheets favorably at the end of the year.
Seasonality is not peculiar to the stock markets. In fact forex markets also tend to exhibit strong seasonal effects. Seasonality can be defined as a pattern that occurs at a particular period of the year.
The January Effect also takes place in forex markets because most of the investors who are liquidating their stock positions try to convert their local currencies into dollars at that time.
However, dollar shows stronger January Effect in some currency pairs as compared to others. There is a summer effect also. It has also been observed that dollar shows a summer seasonality when it tends to rise in USD/JPY pair and USD/CAD pair in the month of July and give back its gains by August.
There are many seasonal patterns in currency pairs that have been studied in other parts of the year. Now, it does not mean that you should take these effects blindly and trade based on them.
Seasonality only shows that there are strong chances that during a particular time of the year, the chances of a particular currency pair going up or down are more.
In some years, the effect may be pronounced. In others, not so pronounces. As a forex trader, you should keep these seasonal effects at the back of your minds while trading during that time of the years. You need to just understand these seasonal patterns. - 23199
About the Author:
Mr. Ahmad Hassam has done Masters from Harvard University. He is interested in day trading; stocks and forex. Read about Trend Forex System. Best Forex Signal Service.
posted by X - Men @ 2:44 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home