Forex trading in Asia is conducted in major regional financial hubs. During the Asian trading session, Tokyo has the largest market share, followed by Hong Kong and then Singapore.
Despite the flagging influence of the Japanese central bank on the forex market, Tokyo remains one of the most important currency centers in Asia. It is the first major Asian market to open each morning, and many large participants often use the trade momentum established there to gauge market dynamics and devise their trading strategies.
Trading in Tokyo can be thin from time to time. Large investment banks and hedge funds are known to try to use the Asian session to run important stop and option barrier levels. It provides a ranking of the different currency pairs and their ranges during the Asian trading session. For more risk-tolerant traders, U.S. dollar/Japanese yen (USD/JPY), British pound/Swiss franc (GBP/CHF), and British pound/Japanese yen (GBP/JPY) are good picks because their broad ranges (averaging 90 pips) provide short-term traders with lucrative profit potential.
Foreign investment banks and institutional investors, which hold mostly dollar-dominated assets, generate a significant number of USD/JPY transactions when they enter the Japanese equity and bond markets. Japan’s central bank, with more than $800 billion of U.S. Treasury securities, also plays an influential role in affecting the supply and demand of USD/JPY through its open market operations.
Finally, large Japanese exporters are known to use the Tokyo trading session to repatriate their foreign earnings, which heightens fluctuations in the dollar/yen rate. Also, the GBP/CHF and GBP/JPY rates remain highly volatile, as central bankers and large market players start to scale themselves into positions in anticipation of the opening of the European trading session.
At the opposite end of the spectrum, the Australian dollar/Japanese yen (AUD/JPY), British pound/U.S.dollar (GBP/USD), and U.S. dollar/Swiss franc (USD/CHF) are good choices for more risk averse traders. The moderate volatility of these currency pairs helps shield traders and their investment strategies from the irregular market moves resulting from intraday speculative trades. As a result, these pairs allow medium-term to long-term traders to take fundamental factors into account when making decisions.
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