The most attractive point about forex trading is that a trader can trade for all 24 hours of the day. However, all these hours are not the best times for the trader to trade currencies. The best times to trade the currency pairs are when they are active and there are many transactions that occur. As an example, the EUR/USD pair is most aptly traded during certain hours when there is sufficient volatility in the market to generate profits that are more than the commission that is charged.
The currency popularity list for major currencies goes something like this: the top slot is for the USD; next in list is the Euro; followed by the Japanese yen and the British pound sterling in that order. The US Dollar Index is a measure that indicates the relative value of a group of different currencies which are also those of the most significant trading partners of the United States. This is calculated by factoring in the exchange rates of six major currencies that include the Euro, British pound sterling, Japanese yen, Canadian dollar, Swiss franc, and Swedish krona. In the US Dollar Index, the Euro holds the most weight when compared to the dollar (58%), followed by the Japanese yen (13.6%), British pound sterling (11.9%), Canadian dollar (9.1%), Swedish Krona (4.2%), and Swiss franc (3.6%).
Forex traders speculate on how strong the USD is through pairs of currencies that establish comparative values. Many forex brokers offer different combination of currencies. However, the most popularly traded pairs are as follows: EUR/USD, USD CHF, USD/JPY, GBP/USD, AUD/USD, and USD/CAD. The US dollar is traded from Sunday evening to Friday afternoon every week, offering traders a chance to make profits. In the case of the less popular pairs, the spreads widen during the quieter trade periods and narrow down during the more active trading periods. Both volatility and volume also are known to vary widely in a 24-hour period of trading. A trader has the ability to open or close a trade at any time he/she wants. However, it is seen that trading strategies involving USD are employed during the active forex trading periods.
The EUR/USD cross is the most popularly traded currency pair in the world. In any 24-hour trading cycle, this pair maintains a tight spread. There are many catalysts that make the price swing in both directions and thus the pair is traded actively most of the time and in most time frames. Wing and channel trading are also commonly used strategies with this currency pair.
When to Trade the USD
The best times to trade the USD is when economic data is released and also during open hours at the stock, options and futures and equity exchanges throughout the world. Some double-sided research is recommended because similar price catalysts in Asia, Australia and the Eurozone will have similar effects on pairs such as the EUR/USD just as the catalysts in USA do. Release of US economic data affects all currency pairs and being second only to the China in economy ranking, any economic news that is released causes a ripple effect.
Any currency pair cross that has the USD is also affected by any macro political event that may happen in any part of the world and triggers price variations in the many equity, futures and bond markets. Chinas’ devaluation of its currency Yuan in the year 2015 and the 2011 Japanese Tsunami are examples of economic and natural calamities that caused price variations of this nature.
Economic Releases In Different Time Zones
Economic releases in the USA are scheduled to take place around 8.30 am and 10 am ET and this contributes to a considerable increase in trading volumes. The odds at these times are high for trending price movements in the most popular currency pairs. Australian and Japanese economic releases happen at 4.30, 9.30 and 10.30 pm ET and these get less European attention as it is during their sleeping times. However, it is seen that forex trading volumes go up during these hours. USD paired with GBP, CHF and EUR are impacted during 2 and 5 am ET when Eurozone economic data news is released. It is also to be noted that a time slot of 30 to 60 minutes prior to this and 1 to 3 hours after this slot are especially active trading times as it overlaps with the US trading day run-ups and volumes of the EUR/USD crosses are significantly high during these times in both Europe and the US.
Most USD forex traders do maximum business during exchange working hours and when the bourses at Shanghai, Frankfurt , Sydney, Hong Kong, Tokyo, Chicago and New York are open for business. This heightens trading volumes on the US East Coast during late evening and into the night. The forex trading figures drop sharply during the American lunch hours.
This activity cycle is usually disrupted by Central banks and their agendas when the interest rates are released by Federal Reserve at 2.00 pm. This forces the forex traders to be active during that time. The decisions of certain central banks are scheduled at the following times: Bank of England (BOE) – 7:00 am ET, Bank of Japan (BOJ) – 12:00 am ET, European Central Bank (ECB) – 7:45 am ET, and Reserve Bank of Australia (RBA) – 12:30 am ET
The decisions of central banks of Asia and Australia occur during the active trading hours in the US, whereas the traders in Asia and Australia have to lose sleep to stay abreast of the Federal Reserve interest rate decisions.
All said and done, the six popular currency pairs offer scope for both short-and long-term trading opportunities for forex traders. The best times to trade these currency pairs are the times that occur soon after or just before economic news releases in the United States and in the late evening hours of the US ET as well as the times following lunch hours.