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Seasonal Factors in Forex Trading

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Published: 25Sep2009
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The focus of this article is on the start of the New Year and start of post-summer forex trading. The thinnest time in terms of liquidity is generally the last two weeks of the year and the second thinnest time is the last two weeks preceding the U.S. Labor Day holiday. The start of post-summer trading is said to begin on the day after Labor Day. The goal of this article is to highlight a pattern I have seen in the currency market often at the start of these periods.

The reason this is important is that there are often sharp moves in the forex market during the first few days of the year and post-summer as forex trading slowly returns to full liquidity and traders set-up positions for the period ahead. It usually takes several days for the market to return to full liquidity and market moves can be exaggerated during these times. This follows a period where positions are often trimmed and risk is scaled back. My experience is that the first fee days of these periods are characterized by sharp trend moves followed by false starts and whipsaws. This is important because forex traders (and other markets as well) often get carried away with what appears to be rapidly developing trends and then are forced to run for cover when they quickly run out steam and reverse. This is not always what unfolds but something to keep in mind just in case.

An example is the current market where the dollar has come under sharp selling pressure out of the box at the start of post-summer forex trading. It is day three today following Monday’s Labor Day holiday and the currency market has broken out, sending the U.S. dollar to new lows for the year-to-date vs. several currency pairs, such as the eur/usd. While there appears to be legs to these currency moves as dollar weakness has been broad based, it remains to be seen whether this will turn out to be one of those quick trends that quickly aborts or one that follows through.

The point is history has shown a need to be cautious during the first few days of the New Year and start of post-summer forex trading. There is more than enough volatility in the first few days to keep a trader occupied but try not to get carried away with trends that often see a quick end. This does not suggest looking to fade or take the other side of an apparent trend move, but to be aware that they often do not follow through. While there are exceptions (the current post-summer forex moves may turn out to be one), my rule of thumb argues for some caution during these periods. Note, I am only speaking from personal experience and not using empirical data to support my view.

Jay Meisler is a co-founder of Global-View.com, the leading forex discussion site for more than a decade and where traders from around the globe come for the latest breaking news, flows, rumors and trading ideas =>http://www.global-view.com

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