The U.S. Dollar (USD) ranks as the most popular currency in the world, trailed by the Euro (EUR), Japanese Yen (JPY) and British Pound Sterling (GBP). The U.S. Dollar Index provides a comprehensive snapshot of long- and short-term price action through a geometric mean of the dollar's value relative to the following currencies and weighting:
Forex traders speculate on USD strength and weakness through currency pairs that establish comparative value in real time. Although brokers offer dozens of related crosses, the majority of clients focus their attention on the six most popular pairs:
USD trades continuously from Sunday evening to Friday afternoon in the United States, offering significant opportunities for profit. However, volume and volatility can fluctuate greatly in each 24-hour cycle, with spreads in the less popular pairs widening during quiet periods and narrowing during active periods. While the ability to open and close positions at any time marks a key forex benefit, most USD trading strategies unfold during active periods.
Many forex traders focus their full attention on the EUR/USD cross, the most popular and liquid currency market in the world. The cross maintains a tight spread throughout the 24-hour cycle, while multiple intraday catalysts ensure that price action will set up tradable trends in both direction and in all time frames. Long- and short-term swings also work extremely well with classic rangebound strategies, including swing trading and channel trading.
U.S. Dollar Price Catalysts
The best times to trade the U.S. dollar track the release of economic data as well as open hours at equity, options and futures exchanges around the world. Planning ahead for these releases requires two-sided research because catalysts in Australia, Asia and the Eurozone will move popular pairs with the same intensity as will local U.S. catalysts. U.S. economic data exhibits the greatest impact on pricing in most 24-hour cycles for two reasons: a) it affects all currency pairs and b) the economy ranks second in the world behind China, with changes in its economic outlook having an immediate ripple effect across the planet.
In addition, USD crosses are vulnerable to economic and political macro events that trigger highly correlated price action across equities, currencies and bond markets around the world. China’s devaluation of the yuan in August 2015 offers a perfect illustration. Even natural disasters have the power to generate this type of coordinated response, as evidenced by the 2011 Japanese tsunami.
U.S. economic releases centered at 8:30 am and 10:00 am ET generate extraordinary USD trading volume, with high odds for strongly trending price movement in most popular pairs. Japanese and Australian releases move the USD/JPY and AUD/USD but get less European attention because they’re centered at 4:30 pm, 9:30 pm and 10:00 pm ET when Europe is in the middle of their sleep cycle. Even so, forex trading volume will spike sharply around these time zones.
Eurozone economic data impacts USD crosses with EUR, CHF and GBP, with key releases centered between 2:00 am and 5:00 am ET. The time segment from 30 to 60 minutes prior to these releases and 1 to 3 hours afterwards highlights an enormously popular period to trade European USD crosses because it overlaps the run-up into the U.S. trading day, drawing in significant volume from both sides of the Atlantic.
U.S. Dollar and World Exchange Hours
The schedules for many USD traders roughly follow exchange hours, centering their activity when Frankfurt, Tokyo, Shanghai, Hong Kong, Sydney, New York and Chicago equity, futures and options markets are open for business. This localization generates an increase in trading volume around in the late evening on the U.S. East Coast, continuing through the night and into the American lunch hour, when forex trading activity can drop sharply.
However, central bank agendas shift this activity cycle, with forex traders around the world staying at their desks when the Federal Reserve (FOMC) is scheduled to release a 2:00 pm interest rate decision or the minutes of the prior meeting. Other central banks schedule their decisions as follows:
Central bank decisions in Japan, Australia and Europe occur during already active traded periods while the FOMC is an outlier, reporting late in the European evening and in the Asia and Australian pre-dawn hours. This offers convenience to U.S.traders, while market players on the other side of the Atlantic and Pacific often need to lose sleep to stay ahead of the Fed’s market moving policy shifts.
The Bottom Line
Six popular currency pairs offer U.S. dollar traders a wide variety of short and long-term opportunities. The best times to trade these instruments are centered before and after economic releases in in the U.S. and cross-venues, with active forex trading between the late evening U.S. Eastern Time and the following lunch hour.