Revolving around its axis with a 24 hours period, the globe not only causes days and nights, but also imposes a similar cycle on the financial markets, aligned with the daily life. The financial events in numerous countries, from one side of the globe, to the other, become embedded in the market, leading to an implicit rhythm. Exchanges opening and closing with regular hours at any day, banks which take their parts in the market at specific times of the day, and trading volume and numerous economic events constitute the heart of the cyclic nature of the Forex market.
The knowledge of which countries begin and end trading day at around which hour with the local time, would bring substantial advantages in many cases. The trading begins with Sydney around 23:00 (GMT+2), continues with Tokyo which opens at 01:00, reaches London around 10:00, and New York enters into the picture about 15:30, bringing along a substantial volume. The knowledge of this cycle would set a trader one step ahead of the competition. Behavior patterns of the market with respect to time frames may provide profitable opportunities if the overall trend of the parities invested in is known.
Sydney, New Zealand, and Tokyo wakes up to a brand new day after 23:00, which would bring in relatively higher activity levels in parities involving JPY, NZD, and AUD. Fluctuations involving major currencies such as EURO and USD may be more limited at this time. However, particularly NZD and AUD may see some action due to the positions speculators take in order to profit from the interest rate differences between the countries involved.
As the sun rises above Europe, the trading begins to accelerate. Even though USD long replaced GBP as the global reserve currency, London can still be considered as the heart of trading worldwide. That is why 10:00 (GMT+2) is a time of intense trading. Yet one should remember one more point. Initial trading seeing some intense activity may sometimes be misleading. London, known for intense trading, sees significant action in the beginning of the trading session due to pending orders of intermediaries. This initial surge may often mislead traders. Leaping initially in a given direction would often reverse its bearing at the end of the first hour, setting the actual trend of the day.
A parity seeing rise throughout the European trading day may reverse its course and nullify any increase with the opening of the US trading day at 15:30. The reaction of American speculators in the face of European trading may bring the parity down to its level before the European trading session. That is why the initial session at New York may be critical for existing positions.