How Seasonality Effects Forex 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 depends on the study of underlying economic factors that affect currency markets. Technical analysis is based on the premise that past price action can be used 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.
There is nothing extraordinary about the January Effect. The effect takes place due to the fact that many investors try to recognize capital gains or losses at the end of the year due to tax reasons. Many corporations also try to window dress their balance sheets at the end of the year.
The interesting fact is that seasonality is not peculiar to the stock markets. Forex markets also tend to show seasonal effects. Seasonality is defined as a pattern that occurs at a particular time of the year.
The January Effect also affects forex markets due to the fact that many investors who are adjusting their stock positions try to convert their local currencies into dollars at that time.
However, dollar may show stronger January Effect with some currencies as compared to others. It has also been studied that dollar shows a summer seasonality when it tends to rise in USD/JPY and USD/CAD in the month of July and give back its gains in the month of August.
There are many other seasonal patterns in currency pairs. However, it does not mean that you should believe in these effects blindly. Just keep them in your mind when trading.
Seasonality in currency pairs only means that there is a strong probability that during a particular time of the year, the chances of a particular currency pair going up or down are high.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23208
Fundamental analysis depends on the study of underlying economic factors that affect currency markets. Technical analysis is based on the premise that past price action can be used 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.
There is nothing extraordinary about the January Effect. The effect takes place due to the fact that many investors try to recognize capital gains or losses at the end of the year due to tax reasons. Many corporations also try to window dress their balance sheets at the end of the year.
The interesting fact is that seasonality is not peculiar to the stock markets. Forex markets also tend to show seasonal effects. Seasonality is defined as a pattern that occurs at a particular time of the year.
The January Effect also affects forex markets due to the fact that many investors who are adjusting their stock positions try to convert their local currencies into dollars at that time.
However, dollar may show stronger January Effect with some currencies as compared to others. It has also been studied that dollar shows a summer seasonality when it tends to rise in USD/JPY and USD/CAD in the month of July and give back its gains in the month of August.
There are many other seasonal patterns in currency pairs. However, it does not mean that you should believe in these effects blindly. Just keep them in your mind when trading.
Seasonality in currency pairs only means that there is a strong probability that during a particular time of the year, the chances of a particular currency pair going up or down are high.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23208
About the Author:
Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading; stocks and forex. Read about Trend Forex System. Best Forex Signal Service. Learn Forex Trading.
posted by X - Men @ 7:46 AM
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