There’s no fixed set of potential events, and there’s never any way of ruling out what may transpire, such as a terror attack, a geopolitical conflict, or a natural disaster. You just need to be aware that the risk exists and factor it into your trading strategy.
Of typical scheduled weekend events, the most common are quarterly Group of Twenty (G20) meetings (see Chapter 3 for more on the G20) and national elections or referenda. Just be sure you’re aware of any major events that are scheduled. During the height of the Eurozone sovereign debt crisis, a lot of last-minute bailout decisions were made over the course of a weekend, which had major implications for the markets when they opened.
On most Sunday opens, prices generally pick up where they left off on Friday afternoon. The opening price spreads in the interbank market are much wider than normal, because only Wellington and 24-hour trading desks are active at the time. Opening price spreads of 10 to 30 points in the major currency pairs are not uncommon in the initial hours of trading. When banks in Sydney, Australia, and early Asian centers enter the market over the next few hours, liquidity begins to improve and price spreads begin to narrow to more normal levels.
Trading in the Asia-Pacific session
Currency trading volumes in the Asia-Pacific session account for about 20 percent of total daily global volume, according to the 2019 triennial BIS survey. (BIS, by the way, is the Bank for International Settlements, and the survey can be found at www.bis.org.) The principal financial trading centers are Wellington, New Zealand; Sydney, Australia; Tokyo, Japan; Hong Kong; and Singapore. (A session is a trading period, or trading hours, for a given global region. There are three sessions, or sets of trading periods/hours: Asia-Pacific, European, and North American.)
News and data reports from New Zealand, Australia, and Japan hit the market during this session. New Zealand and Australian data reports are typically released in the early morning local time, which corresponds to early evening hours in North America. Japanese data is typically released just before 9 a.m. Tokyo time, which equates to roughly 7 or 8 p.m. ET. Some Japanese data reports and events also take place in the Tokyo afternoon, which equates to roughly midnight to 4 a.m. ET.
The overall trading direction for the NZD, AUD, and JPY can be set for the entire session depending on what news and data reports are released and what they indicate.
In addition, news from China, such as economic data, interest rate changes, and official comments or currency policy adjustments, may also be released. Occasionally as well, late speakers from the United States, such as Federal Reserve officials speaking on the West Coast of the United States, may offer remarks on the U.S. economy or the direction of U.S. interest rates that affect the value of the U.S. dollar against other major currencies.
For individual traders, overall liquidity in the major currency pairs is more than sufficient, with generally orderly price movements. In some less liquid, non-regional currencies, like GBP/USD or USD/CAD, price movements may be more erratic or nonexistent, depending on the environment. With no Canadian news out for the next 12 hours, for example, there may be little reason or interest to move that pair. But if a large market participant needs to make a transaction in that pair, the price movement may be larger than normal.
Trading in the European/London session
About midway through the Asian trading day, European financial centers begin to open up and the market gets into its full swing. European financial centers and London account for over 51 percent of total daily global trading volume, with London alone accounting for about one-third of total daily global volume, according to the 2019 BIS triennial survey.
News and data events from the Eurozone (and individual countries like Germany and France), Switzerland, and the United Kingdom are typically released in the early-morning hours of the European session. As a result, some of the biggest moves and most active trading take place in the European currencies (EUR, GBP, and CHF, or Swiss franc) and the euro cross-currency pairs (EUR/CHF and EUR/GBP).
Asian trading centers begin to wind down in the late-morning hours of the European session, and North American financial centers come in a few hours later, around 7 a.m. ET.
Trading in the North American session
Because of the overlap between North American and European trading sessions, the trading volumes are much more significant. Some of the biggest and most meaningful directional price movements take place during this crossover period. On its own, however, the North American trading session accounts for roughly 28 percent of global trading volume.
The North American morning is when key U.S. economic data is released and the forex market makes many of its most significant decisions on the value of the U.S. dollar. Most U.S. data reports are released at 8:30 a.m. ET, with others coming out later (between 9 and 10 a.m. ET). Canadian data reports are also released in the morning, usually between 7 and 9 a.m. ET. There are also a few U.S. economic reports that variously come out at noon or 2 p.m. ET, livening up the New York afternoon market. (See Chapter 9 for more details on individual economic data reports.)
London and the European financial centers begin to wind down their daily trading operations around noon ET each day. The London or European close, as it’s known, can frequently generate volatile flurries of activity. A directional move that occurred earlier in European trading or the New York session may be reversed if enough traders decide to take profit (selling out or exiting long positions) or cover shorts (buying back short positions). Or the directional move may extend farther, as more traders jump onboard before the end of the trading day. There’s no set recipe for how the European close plays out, but significant flurries of activity frequently occur around this time.
