How Seasonal Trends Effect FX Markets?
You as a forex trader can either use fundamental analysis or technical analysis in studying the forex markets and making predictions about the future. The savvier among you will try to combine both in making predictions about the future direction a particular currency is going to follow.
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.
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 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, 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 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. - 23212
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.
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 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, 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 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. - 23212
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 @ 2:30 AM
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