The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- Trading the OTC (over the counter) currency markets offers an opportunity to hedge stock and bond investing, but really is more of a traded market following the ebbs and flows of global commerce than it is an investment arena to plan retirement from. Getting to know six major currency pairs would seem an easy task when compared to the tens of thousands of stock and bond options available for analysis.
Forex trade is not all about how each currency will move against the Usd; just as important is knowing when the market will have momentum. Setting times to trade really does make a lot of sense with the near-term view that forex valuations carry, and the fact that each 24-hour period has to absorb three regional commercial market's trade, in Asian, Europe and the U.S.
There are three main forex moving times that regularly garner attention, and therefore offer an ability to move prices with momentum. They are the 2am ET German Dax futures market getting underway, the 6-7am ET London gold/oil fixings and LIBOR rates being set, and the 11am ET European market close.
Outside of that, the return from lunch in Japan between 11pm ET and midnight, and the closing of the NYMEX markets at 2.30 pm ET really are the only other times that prices move substantially and then hold.
At the end of the U.S. session the pattern is for Asian markets to try and initially reverse U.S. trade direction, although the lack of volume tends to soon allow pairs to find and hold support areas. The European markets tend to move in the same direction as Asian trade, and then Chicago based futures movement will try to reverse things back in the direction of where the U.S. previously closed, and re-set their books as the London fixings are placed between 5-6am ET.
At 10:30am GMT in London, telephone bids for the gold and oil fixings take place, something that sets the morning clearing prices for bullion and crude dealers that (are then adjust once again at 3.30pm GMT). At 11am GMT each day in London the British Bankers Association set the inter-bank LIBOR rates, something that sets the tone for lending rates between financial market participants.
The London fixings tend to force Chicago based futures markets into a re-alignment program at 06:00 ET that replicates the newly set fair values on oil, gold, and lending rates, and by default tends to then impact Usd based currency values. It is rare for the U.S. not to push back each morning and reverse the pattern of forex trade that came before, especially if a sizeable move has happened in overnight forex trade.
Forex traders really need to know what is going to trigger the technical set-ups, and therefore be prepared to ride momentum while it lasts, and to cap expectancy and exposure in things are moving against the near-term trend. In the trading forex arena there are different things to look for than in the equity and bond investment world; a week in forex absorb fifteen regional equity market moves, and all of which are moving for varying commercial regions, and using foreign exchange to hedge commitments, repatriate overseas profits, align reserve values, and garner swap interest.
The European and then NYMEX closes at 11am ET and 2.30 pm ET are the U.S. based things to get out of the way, because then, maybe, the equity markets can reveal where they really want to go, and by default send the Usd in the opposite direction. Traders looking for moves outside of 2am, 6am, 11am, and maybe 2:30 ET, may just find themselves sitting and waiting, wondering why they just bought the high of the day that then reversed.
Try it out, take a look at a volume study in forex futures, or look at the longest daily 30 minute candles, and see on average what time they hit. Then look at the times that nothing happens. That is not luck, it is the forex market tagging along, following the ebbs and flows of global commercial trade.
As the global economy travels trades its way out of the business cycle trough phase, the leaning is towards looking at S&P futures trade to confirm near-term sentiment, and risk tolerance. The speculators are never too far away from the S&P in times of fear; either selling into the fear of loss, or buying into the fear of missing profits. That is the reason for so much near-term volatility, and that is how things will stay until signs of GDP expansion are seen globally.
Until then it seems that the 24-hour a day S&P futures trade will set up the eight hour S&P cash market for currency traders to monitor, that will be followed by the S&P futures market tracking the 16 hours of Asian and European activity. Forex will follow that equity trend, at least until interest rates start to rise globally, and economic expansion takes place. At that time interest rate differentials will take over the valuation of forex pairs, to the greater degree.
Marco Hague is one of the founders and principals of The London Forex Broadsheet (commonly known as TheLFB), a global forex trader portal with headquarters in the U.S. Hague began his career with the Bank of England dealing with foreign exchange control, and he has been trading for the last three decades. He has been involved with institutional risk asset ratio analysis and the implementation and maintenance of institutional trade desks globally.