Do you know what is the prime time in forex trading? Prime time is the five hours that are very important for forex traders. Prime Time is the overlap of the Frankfurt, London and New York Trading Sessions and occurs between the 7 AM EST and the 1 PM EST. And if you are in London, this time is the Noon to 6 PM.
The most heavily traded currency pairs in the global currency markets are the EURUSD, USDJPY, GBPUSD, USDCHF, USDAUD and USDCAD. Now, did you observe one thing common between all these six heavily traded currency pairs? Yes, USD or the US Dollar. All these six major currency pairs are being traded against the US Dollar.
Now, the fact that all these major currency pairs have one thing in common, the USD and the fact that the majority of the data that would be affecting the USD would be released between 8:30 AM EST and 10 AM EST makes these five hours between 7 AM EST and 1 Pm EST very important for those forex traders who trade these major pairs. Looking at the data released by the International Bank of Settlement, more than 90% of the trading volume in the currency markets involve these six currency pairs. This makes these five hours the most volatile five hous in the forex market 24 hour day.
What type of data affects the USD during these five hours, you might ask. The most important economic news releases like the FOMC Meeting Minutes, The NFP Report, the COT Report and other important reprots are released arond 8:30 AM EST as well as 10 AM EST. This makes this time very important as any deviation from the expected can set in new trends in these currency pairs. The US Dollar Index Futures Trading also impacts these pairs as the New York Center gets active after 7 AM EST.
These are the most active five hours primarily because of the overlap between the United States, United Kingdom and the European currency markets. This overlap makes these five hours the most active and the most volatile five hours. Think of 7 AM to 8 AM in each center as the premarket hours. Traders are getting active. Most will be going over their charts and determining the trading plan for the day.
After 8 AM EST, things start to gear up with more traders becoming active. If there is a news release around 8:30 AM EST or at 10 AM EST, watch out! Market can get highly volatile around these times. If you are not a news trader, you might like to stay out of the market around these times. You need to keep an eye on the FED statements. What you need to do is to have the international economic news calendar that gives you the times and dates of the important economic news releases that are scheduled by the European Central Bank (ECB), the Bank of England (BOE) or the Bank of Japan (BOJ).
It is also important for you to consider the other markets that affect these pairs. The overlap of the European, the London and the US Markets bring into play many other markets too that can affect the currency pair that you trade from amongst the six major currency pairs mentioned above. You need to understand how these markets affect each other. Currency markets in a way encompasses all other markets that includes the stock market and the commodities market.
You must be aware of this fact that the US Dollar and the Gold Prices are negatively correlated. So, when one moves up, the other moves down. Right now, gold is moving up so USD is expected to move down. Whatever, these five hours are considered to be the most volatile as well as active due to the overlap of the three important financial centers in the world.