Trading Post

Last updated: May 20, 2014 8:44 am

Forex traders target timezone arbitrage

Patterns emerge in currency markets between trading hours

Attention US forex traders, if you want to make money in the euro/dollar (EURUSD) then start the day taking the opposite position on your European cousins.

That’s what can be inferred from an interesting note by Richard Cochinos, forex strategist at Citi.

He looked at movements in spot prices in the three main trading time zones, centred on Singapore, London and New York, creating indices so that each may be seen as a regional position metric and sentiment gauge.

He found, for instance, that 95 per cent of the yen’s weakness versus the dollar during 2012-13 came during the American and European time zones.

In other words, it looked to be foreign traders that had a more bearish view of the Japanese unit.

Also there is a “consistently negative correlation how EURUSD has been trading between New York and London desks”.

The cross has changed little since the start of 2009, but as the chart shows if “you systematically did the opposite of the London session every day since 2013, you would have made 9 per cent”.

Forex is seeing a day [timezone] trader mentality, says Mr Cochinos.

“As long as volatility remains low, cash markets are telling us it pays to fade” the inherited trend.

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