Monday Morning
A typical week in the currency markets kicks off on Monday morning in Wellington, New Zealand. This is the first financial centre in the world to see the dawn of a new trading day. When Wellington opens for business it is very early Monday morning in Asia, while still being Sunday evening in Europe, and Sunday afternoon in North America. The exact opening times of each market will vary depending on whether your country observes daylight savings or not. Wellington is where the currency markets resume trading after the North American close on Friday evening. Unlike other markets they will remain open for business all the way through to 5 p.m. Eastern time on the following Friday.
Open your trading platform; choose a currency pair and using either a bar or candlestick chart try to find the most recent Monday opening with a distinct break in price action. If you have trouble finding one try viewing the data at a shorter duration. In many cases you will see a gap in the chart between where the market closed on Friday evening in New York and where it opened in Wellington on Monday morning. You will be able to find a particularly pronounced break on all USD pairs between the 13th and 15th of September 2013. Over this weekend Larry Summers withdrew from running as the next chairman of the Federal Reserve. This news caused the dollar to trade much lower when the markets re-opened on Monday.
The Wellington opening is important because it is the first point in the week where the market has an opportunity to digest the events that took place over the weekend. As a result, it’s not uncommon to see a gap up or down between the close of the North American session on Friday evening and the New Zealand opening on Monday morning. This is something to keep in mind when you are holding positions over the weekend. Even though trading ceases on Friday currency traders don’t take days off, so always stay abreast of the news that may affect the currencies you are trading because you could be in for a shock come Monday morning.
Three Trading Sessions
Forex trading is divided into three main sessions that overlap throughout the day as different markets open and close. These sessions are the Asian/Tokyo session, the European/London session, and finally the North American/New York session. Even though Tokyo, London and New York are the big three financial players, there are many other countries contributing, both in terms of liquidity and also by extending opening hours beyond those of the cities which have become synonymous with each session. For instance, as already mentioned New-Zealand is open hours before Tokyo gears up for trading, but the Asian session also includes other important global players such as Australia, Singapore and China.
Asia
During the Asian session important economic data from the region is released, so traders are watching closely for developments that will have knock-on effects on the European and North American regions throughout the rest of the trading day. As the third most traded currency in the world the yen is by far the biggest player during the Asian session. According to the preliminary findings of the BIS Triennial Central Bank Survey, the yen accounted for around 23% of daily turnover in April of 2013. During this session you can expect a great deal of activity on USD/JPY, EUR/JPY and AUD/JPY.
Europe
At the end of the Asian trading day European markets start coming online. The European session is important to traders because it coincides with the close of the Asian trading day and the first half of the North American trading day. Positioned as it is between these two other major financial centres, and with the euro being the second most traded currency globally (33.4% of daily turnover by the last BIS count), the European session benefits from being in the very thick of it as far as trading activity is concerned. Liquidity and market activity are at their highest during the European session and even though London is the biggest player here, other large European financial centres, such as Germany and France, are also very important and begin trading in advance of London’s opening. Economic data from the Eurozone, as well as from the United Kingdom and Switzerland cause the biggest movements in price action to come from EUR/USD, GBP/USD and USD/CHF, as well from the EUR/GBP and EUR/CHF cross pairs.
North America
The North American session coincides with afternoon in the European session. The fact that the markets using the first and second most traded currencies are live at the same time (USD was on one side of 87% of all trades in April of 2013) and that most key economic indicators from the United States are released in the morning, causes this period to be by far the most active in terms of trade volumes and price movements. At midday the European markets start winding down; this can result in some final flurries of activity which have been known cause surprises. In the afternoon trading activity can be a little subdued as the American continent finds itself trading on its own, however volatility can be generated by several economic indicators that are routinely released in the afternoon as well as public addresses by FOMC members. Obviously New York is the main player here but activity from the Canadian and South American market shouldn’t be overlooked. In fact the Mexican Peso was one of 2013’s big surprises in the triennial BIS survey. It saw a large increase in market share compared to the other emerging market currencies to become one of the top ten most actively traded currencies, with a global market share of 2.5%.
Trading wraps up at 5 p.m. Eastern time in New York and the markets will remain dormant until Wellington re-opens for business bright and early on Monday morning.
