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 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.
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.
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 due to the same reasons. 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 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 probabilities that during a particular period of the year, the chances of a certain currency pair going up or down are more pronounced.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23162
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.
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.
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 due to the same reasons. 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 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 probabilities that during a particular period of the year, the chances of a certain currency pair going up or down are more pronounced.
Forex traders should keep these seasonal patterns at the back of their minds while trading during that period. - 23162
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 @ 2:22 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home