How Seasonal Trends Effect FX Markets?
Many forex traders depend on either fundamental analysis or technical analysis in their trading. The savvier among them try to combine both in making predictions about the direction a particular currency is going to follow in the future.
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.
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.
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.
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, 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 other seasonal patterns that have been studied in other parts of the year. Now, it does not mean that these seasonal effects take place exactly the same way every year.
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. - 23210
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.
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.
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.
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, 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 other seasonal patterns that have been studied in other parts of the year. Now, it does not mean that these seasonal effects take place exactly the same way every year.
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. - 23210
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. Learn Forex Trading.
posted by X - Men @ 7:37 AM
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