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 uses study of economic forces whether they are financial or socio political that affect currency markets in the long run. Technical analysis also know as Charting studies the past price action charts to make predictions about the future price action in forex markets.
Most of you who have been trading stocks must be familiar with the term: The January Effect. The January Effect is based on an observation that during the last few days of December and the fifth trading day in January stocks tend to perform very well.
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.
Now the interesting fact is that seasonality is not common to the stock markets. Forex markets also show seasonal effects. Seasonality is defined as a trend or pattern that occurs at some particular part 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, the January Effect is more pronounced in certain currency pairs as compared to others. For example, dollar shows pronounced January Effect against some currencies but not other. The Summer Effect also takes place when dollar shows a summer seasonality when it tends to rise in USD/JPY and USD/CAD in the beginning 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.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23196
Fundamental analysis uses study of economic forces whether they are financial or socio political that affect currency markets in the long run. Technical analysis also know as Charting studies the past price action charts to make predictions about the future price action in forex markets.
Most of you who have been trading stocks must be familiar with the term: The January Effect. The January Effect is based on an observation that during the last few days of December and the fifth trading day in January stocks tend to perform very well.
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.
Now the interesting fact is that seasonality is not common to the stock markets. Forex markets also show seasonal effects. Seasonality is defined as a trend or pattern that occurs at some particular part 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, the January Effect is more pronounced in certain currency pairs as compared to others. For example, dollar shows pronounced January Effect against some currencies but not other. The Summer Effect also takes place when dollar shows a summer seasonality when it tends to rise in USD/JPY and USD/CAD in the beginning 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.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23196
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 @ 2:05 AM
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