By Al Brooks Forex May 23, Central bank meetings are held more or less monthly, although not all meetings have a monetary policy decision-making process, and are therefore less likely to create volatility.
The cross maintains a tight spread throughout the hour cycle, while multiple intraday catalysts ensure that price actions will set up tradable trends in both directions and along all time frames. The best time to trade the euro coincides with the release of economic data , as well as the open hours at equity, options and futures exchanges.
Planning ahead for these data releases requires two-sided research because local eurozone catalysts can move popular pairs with the same intensity as catalysts in each of the cross venues. In addition, EUR crosses are vulnerable to economic and political macro events that trigger highly correlated price actions across equities, currencies and bond markets around the world. Even natural disasters have the power to generate this type of coordinated response, as evidenced by the Japanese tsunami.
Eurozone monthly economic data is generally released at 2 a. The time segment from 30 to 60 minutes prior to these releases and one to three hours afterwards highlights an enormously popular period to trade EUR pairs because the news will impact at least three of the five most popular crosses. It also overlaps the run-up into the U. ET and generate extraordinary EUR trading volume as well, with high odds for strongly trending price movement in the most popular pairs.
Japanese data releases get less attention because they tend to come out at 4: ET, when the eurozone is in the middle of their sleep cycle. The schedules for many EUR traders roughly follow exchange hours, centering their activity when the Frankfurt and New York equity markets and Chicago futures and options markets are open for business. This localization generates an increase in trading volume around midnight on the U. East Coast, continuing through the night and into the American lunch hour, when forex trading activity can drop sharply.
However, central bank agendas shift this activity cycle, with forex traders around the world staying at their desks when the Federal Reserve FOMC is scheduled to release a 2 p.
The most noticeable times of day are immediately after economic data releases or monetary policy statements after central bank meetings. Most important economic data are released for the Euro at 10 am GMT. However, Germany and France usually release data just before that time. The timing of Euro data releases typically coincides with the opening of the London trading session which starts at around 7 am GMT.
Economic data from the US is released at various times throughout the day; the most important data is released before the stock markets open at Other data is released in the following hours, and not later than 4: Central bank meetings are held more or less monthly, although not all meetings have a monetary policy decision-making process, and are therefore less likely to create volatility. You can see the schedule for economic data and central bank meetings on various forex news websites.
The chart above shows 7 trading session from June 29, , on a 1-hour candlestick timeframe. We can see how Euro dollar trading tends to be more volatile through the periods outlined by the blue rectangles, compared to the periods in the hours outlined by the yellow rectangles.
The blue rectangles are consistently taller, showing a wider trading range during those hours. The yellow rectangles display the rest of the New York trading session and the Tokyo session which starts at 6 pm EST. Usually, the currency whose economy is enjoying higher growth and lower unemployment will tend to appreciate against its peer. Inflation and interest rates also play a major role in Euro dollar trading.
Higher inflation with lower GDP Growth will weaken a currency in the long run. While the prospect of higher interest rates with similar GDP Growth will strengthen a currency compared to a currency with stable or lower outlook for interest rates. It is necessary, therefore, to keep track of GDP Growth, unemployment and inflation. This website is particularly useful as it allows you to compare historical data for one country against another.
For medium term traders, who hold positions for days or weeks, these charts are essential to get a good idea of the underlying fundamentals for each currency. For day traders, there are a series of data releases from the US and Europe that allow for a potential increase in volatility, which can provide for trading opportunities. Possibly the most important day of the month is Non-Farm Payrolls day.
This data is the job creation number for the whole of the US and is greatly anticipated on the first Friday of every month at The importance of this number in indicating how well the economy is performing means that any surprises from the forecast can cause large moves in price. Sometimes, these price moves may last only a few minutes or hours, so timely execution is critical. Higher interest rates will typically have positive, or bullish, effect on a currency, at least short term.
On the other hand, a decrease in interest rates will usually see a currency depreciate short term. This is explained by the fact that under like for like circumstances investors will prefer to hold a currency that pays higher interest than one that pays less, and many large institutions and hedge funds take advantage of these interest rate differentials thru currency carry trades.
The European Central Bank ECB meets, more or less, twice a month, where one meeting is scheduled as being a monetary policy meeting. The Fed meets, more or less, once a month.
Although the Fed meetings are potentially open to producing a change in monetary policy, changes usually only occur in March, June, September or December, which is when the Fed chair holds a press conference and issues a speech on monetary policy. This means that if a change in interest rates were made, it would be easier to communicate the reasons behind the change, and the assessment for future changes in the coming months. Central bank policy meetings and the subsequent press statements can also increase volatility and may present shorter term traders an opportunity to jump on an emerging trend.
If the policy statement uses wording that was not expected or seems to be hinting at a change in monetary policy, the EURUSD price can change rapidly within the space of a few minutes. As the EURUSD currency pair is the most traded in the world, there are a large number of traders watching every important economic data release or monetary policy meeting that can affect its exchange rate. The data is available to everyone at virtually the same time.
The ease of access to data means that surprises in data, more usual in US data, or changes in monetary policy can create large movements in price. As with any technical strategies, these are not fool-proof, but rather, should be used as a starting point from which to build on your own ideas. The first strategy we are going to look at is the Three moving average cross-over.
With each successive bar, it then takes the next 21 days and calculates the average close price, creating an average of price over the preceding 21 days. This strategy then creates two more moving averages, one with a longer period than 21, and another with a shorter period than A popular combination is the 55 and 13 period, coupled with the 21 period.
As the day moving average crosses, from below, above the day and day moving averages, it creates a buy signal. The buy signal is only confirmed once the day signal also crosses above the day moving average. From the EURUSD chart above you can see that the strategy does not tend to do very well when markets are moving sideways. In the two pink rectangles, the EURUSD price traded within a substantially wide range, but still traded horizontally with no real trend in either direction.