Forex traders use fundamental analysis as described earlier to identify trading opportunities by analyzing economic information for a longer-term perspective. Short-term traders should also understand which reports can cause a shift in currency markets and know when they are released.
Knowing the best times to trade the markets will help you nail down when a potential trade may materialize. The pie chart in Figure 1.4 showed that the largest percentage value traded against the U.S. dollar was the euro; therefore, that suggests that one of the highest-volume time periods would be when the European session opens. The central place of foreign currency dealings is in London, where the second-most-active trading volume occurs (the U.S. session being the first). Therefore, London is where there are likely to be large-range swings in the market granting day traders an opportunity to profit. That session begins at 3 A.M. (EST) and goes until 11:30 A.M. (EST). So a euro to U.S. dollar (EU/USD) or euro to British pound (EU/BP) or British pound to U.S. dollar (BP/USD) pair would be an appropriate selection to trade during the European session. The U.S. session opens at 8 A.M. (EST), which overlaps the European session; these two sessions combined generate the bulk of trading activity. Most major U.S. economic reports are released at 8:30 A.M. (EST); and, as expected, the currency markets generally react off those reports. This offers traders the opportunity to trade off violent price spikes when economic news is released, especially when the news is a surprise.
Once the U.S. markets close at 5 P.M. (EST), the currency markets are available to trade; but it is not until the Asian session opens at 7 P.M. (EST) that markets will experience potential price swings as volume levels rise. During the Asian session, traders would want to focus on the Australian dollar and the Japanese yen and the trade opportunities offered by the USD/JY or the USD/AUS or the cross pair trading the JY/AUS dollar. Notice that the Asian markets overlap the European session as well, so the Japanese yen versus the euro cross (JY/EU) is a popular pair to trade. Table below shows the time zones on which you want to focus when trading spot forex markets.