How Seasonality Effects Forex 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.
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.
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 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 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. - 23217
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.
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.
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 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 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. - 23217
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.
posted by X - Men @ 2:05 AM
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