Seasonality in 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 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.
There is something known as, The January Effect. Many stock traders must be familiar with this term. This effect is based on a simple observation that during the last day of December and the fifth trading day in January stock prices tend to rally.
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 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 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 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 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.
In certain years, the effect may be pronounced. Just remember that many economic forces play a role in effecting the currencies so in other years, the seasonal effects may not be so pronounced. As a forex trader, you only need to understand these seasonal effects while trading during that time of the year. - 23221
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.
There is something known as, The January Effect. Many stock traders must be familiar with this term. This effect is based on a simple observation that during the last day of December and the fifth trading day in January stock prices tend to rally.
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 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 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 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 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.
In certain years, the effect may be pronounced. Just remember that many economic forces play a role in effecting the currencies so in other years, the seasonal effects may not be so pronounced. As a forex trader, you only need to understand these seasonal effects while trading during that time of the year. - 23221
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 @ 2:12 AM
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