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Trading Currencies in the U.S. Session and Asian Session

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Trading Currencies in the U.S. Session and Asian Session

The foreign exchange market never closes and operates on a 24/7 basis, making it impossible for any trader to track every single market movement and respond accordingly. Since timing is everything in this market, traders need to devise an effective and time efficient investment strategy. This makes it extremely important for traders to take note of the amount of market activity in the market at any given time. Apart from liquidity, a currency’s trading range is also heavily dependent on several factors based on macroeconomics and geographical locations.

This makes it extremely important to understand the different time zones and the trading activity that takes place in them. 

Two of the important time zones to consider for traders are:

  • The U.S. Session: 8 a.m. to 5 p.m. EST
  • Asian Session: 7 p.m. to 4 a.m. EST 

What is the U.S. session?

New York is undoubtedly the 2nd largest marketplace in foreign exchange and also the financial center that guards the backdoor of the forex market. Trading activity in this session usually winds down to a minimum from its afternoon session till the Tokyo market opens the next day. Normally, most  transactions are executed between 8 a.m. and noon in the U.S. session, which makes it a period of high liquidity since European traders still operate in the market at that time. 

Since most currencies in the forex market are quoted with the U.S. dollar as the base and are traded against it, this session is of utmost importance. For example, if one had to trade GBP/JPY, he/she would first have to trade GBP with USD first and then into Yen. This means that a GBP/USD trade involves two currency transactions: GBP/USD and USD/JPY. The volatility of the pair is also dependent on the correlation between the two aforementioned pairs. 

What are the best currencies to trade in the U.S. session?

When trading during this session, the GBP/USD, USD/CHF, GBP/CHF, and GBP/JPY are good choices if you are a risk-tolerant trader. The trading activities in these currency pairs are particularly active because the transactions directly involve the U.S. dollar.  When U.S. equity and bond markets open during the U.S. session, foreign investors have no choice but to convert their domestic currency into dollar-denominated assets to make those transactions. Usually, the GBP/JPY and GBP/CHF possess the widest daily ranges. 

If you are a risk-averse trader, on the other hand, the USD/JPY, USD/CAD, and EUR/USD are best for you. These three pairs offer traders a decent amount of trading range to generate substantial profits with a smaller amount of risk. This is due to their highly liquid nature, which allows an investor to efficiently and promptly cut losses or secure gains. The modest volatility which these pairs provide is ideal for traders pursuing long-term strategies. 

What is the Asian Session?

Trading in Asia is usually conducted by major financial hubs in the region, with Tokyo accounting for the largest market share, followed by Hong Kong and Singapore. Despite the overbearing presence of the Japanese Central Bank on the forex market there, Tokyo still remains one of the most important dealing regions in the Asia region. As it’s the first major Asian market to open daily, many large participants often use trading momentum as a benchmark to plan trading strategies and gauge market dynamics. Trading in the Asian session can appear thin from time to time for normal traders. However, large investment banks and hedge funds try to use this session to run important stop and option barrier levels. 

Japan’s central bank, which holds several billion dollars worth of U.S. Treasury securities, plays an influential role in affecting the supply and demand of pairs such as the USD/JPY. Large Japanese exporters also use this session to repatriate their foreign earnings, which also increases the pair’s fluctuations. Other pairs such as GBP/CHF and GBP/JPY remain volatile as central bankers and large players anticipate the opening of the European session. 

What are the best currencies to trade in the Asian session?

When trading in this session, risk-tolerant traders can go for USD/JPY, GBP/JPY, and GBP/CHF because they possess broad ranges. This provides short-term traders with an opportunity to generate lucrative profits, averaging 90 pips. Both institutional investors and foreign investment banks generate a significant amount of USD/JPY transactions when they enter the Japanese equity and bond markets.  This is due to their massive holdings of dollar-denominated assets. 

Risk-averse traders can go for pairs such as GBP/USD, USD/CHF, and AUD/JPY. All these pairs allow medium-term to long-term traders to take fundamental factors into account while making decisions.  Because these currency pairs are moderately volatile, it helps shield such traders and their investment strategies from irregular market movements caused by intraday speculative trades. 

Final Thoughts

The global forex market is larger in turnover than any other market and is characterized as being extremely liquid. Currency markets can also be volatile, which is caused by market participants reacting to financial and economic news.  This can be anything from data releases with unexpected results, or an unanticipated monetary policy change that the government takes. Currency volatility can also stem from order flow, as market participants place orders to buy and sell FX based on private information.  With over $3 trillion worth of transactions every day in forex globally, any intraday movements in currencies can have a significant effect on financial and economic decisions and outcomes. 

The Asian and U.S.session, along with the European or London Session, are the three most important time zones that every forex trader should follow. One session tends to take its cues from the one before it. For instance, if the U.S. markets are bullish or showing risk appetite, the Asian market will behave the same way and continue to do so until whatever news or sentiment that drives the U.S. markets is priced in. The best times to trade often comes when any two of these sessions overlap, which generated increased liquidity resulting in the fairest prices available. 

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