Why Currency Markets Rest?

Do markets rest? When the markets consolidate

, accumulate or go sideways, it is like markets taking a rest and sleeping. There are two main reasons why the market starts to consolidate, accumulate, bracket or go sideways.The first main reason for the market to consolidate, accumulate or go sideways is when the world is waiting for a fundamental announcement and trades stop trading in anticipation of a major market move or breakout after the announcement. When the traders stop trading, the market starts to consolidate in a tight range or what you call a small trading range. These smaller trading ranges maybe between 20 to 60 pips! They can be seen on smaller timeframes such as the 30 minutes or 60 minutes charts.The second main cause of the market going into a consolidation mode is when a major central bank is about to intervene in the currency market in support of its currency. Sometimes, central banks feelm that the currency is appreciating too much or depreciating too much. It might want the exchange rate to stablize between a band so it decides to intervene in the market. The news travels fast in the global market and the market suddenly starts to consolidate in anticipation of the move adopting the watch and see approach. This foreign exchange intervention by the central bank is usually done to give boost to the exports or make imports cheap for the country.For example, Japan is a major exporting country in the world. Its economy is export based. Japan may want its currency Yen (JPY) to stabilize between 110 and 115 yen to the US Dollar (USD). This is a 500 pips range. Japanese Central Bank (JCB) may feel that by intervening in the currency market, it can boost its exports making them more competitive.In such cases of a central bank intervention, the market may go in a sideways movement for an extended period of time that may last from weeks to months. Large trading ranges such as these between 150 to 500 pips can extend for a longer period of time such as weeks or even a few months. These trading ranges can be observed on larger timeframes such as the four to eight hourly charts or daily charts.How much of the time market is consolidating or moving sideways? Almost something like 60-70% of the time! That means a market only trends for 30-40% of the time and for the rest of the time is just accumulating or moving sideways. This is an important information for you. What this means is that most of time trader have to do range trading because there is nothing else to do.


Why Currency Markets Rest?

By: Ahmad Hassam

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