Corrections don’t always happen out of the blue. Sometimes it is related to different times in the day, week, month or quarter. Being aware of these corrections can help you trade.
The beginnings of trading sessions tend to see sharper moves. This is best seen in the beginning of the European / London session. In many cases, these sharp moves occur also towards the end of these sessions and in the opposite direction of the day’s trade. Why?
Some big traders are closing their trades for the session, and cashing in a profit. Others are cutting their losses. In any case, they don’t want to be exposed after they leave their desks. This is also seen at the end of the US session, but in a smaller scale.
The effect is stronger towards the end of Friday’s London session. As news often breaks during the weekends, many don’t want to stay exposed – they don’t want to bet on the trend two days later. This is also a time when rumors tend to fly at a rapid rate.
The motivation isn’t only to avoid unwanted exposure, but also the need to rebalance their portfolios. Some are committed to holding a strict portion of dollars, euros, pounds, etc. Other are committed to certain exposure to stocks of various countries.
At the end of the quarter, they need to produce a report that reflects their current holdings, and it needs to meet the commitments. So, if the quarter saw interesting moves but no big net change, the rebalancing is insignificant.
But when the markets go in the same direction during the quarter, there will likely be some correction towards the end. Why? The funds have higher than desired proportion of some asset class and smaller than desired proportion of another.
This usually doesn’t reflect a change of trend, but only a seasonal correction.
In case of Q3 2011, stock markets crashed and the dollar strengthened during this period. So towards the end of the quarter, some funds need to replenish their stock of stocks and their stock of currencies different than the dollar.
This phenomenon can repeat itself if there is a clear bias during the next quarters.
The beginnings of trading sessions tend to see sharper moves. This is best seen in the beginning of the European / London session. In many cases, these sharp moves occur also towards the end of these sessions and in the opposite direction of the day’s trade. Why?
Some big traders are closing their trades for the session, and cashing in a profit. Others are cutting their losses. In any case, they don’t want to be exposed after they leave their desks. This is also seen at the end of the US session, but in a smaller scale.
The effect is stronger towards the end of Friday’s London session. As news often breaks during the weekends, many don’t want to stay exposed – they don’t want to bet on the trend two days later. This is also a time when rumors tend to fly at a rapid rate.
End of month / quarter
The phenomenon seen at the end of the month and especially at the end of the quarter can sometimes take a few days. Here, it isn’t only the big traders, but also the big funds, which move slowly but have a huge impact.The motivation isn’t only to avoid unwanted exposure, but also the need to rebalance their portfolios. Some are committed to holding a strict portion of dollars, euros, pounds, etc. Other are committed to certain exposure to stocks of various countries.
At the end of the quarter, they need to produce a report that reflects their current holdings, and it needs to meet the commitments. So, if the quarter saw interesting moves but no big net change, the rebalancing is insignificant.
But when the markets go in the same direction during the quarter, there will likely be some correction towards the end. Why? The funds have higher than desired proportion of some asset class and smaller than desired proportion of another.
This usually doesn’t reflect a change of trend, but only a seasonal correction.
In case of Q3 2011, stock markets crashed and the dollar strengthened during this period. So towards the end of the quarter, some funds need to replenish their stock of stocks and their stock of currencies different than the dollar.
This phenomenon can repeat itself if there is a clear bias during the next quarters.
Editors’ Picks
EUR/USD bounces off lows, back to 1.1860
EUR/USD now manages to regain some balance, retesting the 1.1860-1.1870 band after bottoming out near 1.1830 following the US NFP data on Wednesday. The pair, in the meantime, remains on the defensive amid fresh upside traction surrounding the US Dollar.
GBP/USD rebounds to 1.3660, USD loses momentum
GBP/USD trades with decent gains in the 1.3660 region, regaining composure following the post-NFP knee-jerk toward the 1.3600 zone on Wednesday. Cable, in the meantime, should now shift its attention to key UK data due on Thursday, including preliminary GDP gauges.
USD/JPY declines as Yen strengthens after election win, overshadowing US jobs data
The US Dollar rose briefly after stronger-than-expected job creation but gave back gains against a firm Japanese Yen. The Unemployment Rate falls to 4.3% and wages accelerate, reinforcing expectations of a prolonged Fed pause. Sanae Takaichi’s election victory fuels demand for the Japanese Yen, pushing USD/JPY down for the day.
Editors’ Picks
EUR/USD bounces off lows, back to 1.1860
EUR/USD now manages to regain some balance, retesting the 1.1860-1.1870 band after bottoming out near 1.1830 following the US NFP data on Wednesday. The pair, in the meantime, remains on the defensive amid fresh upside traction surrounding the US Dollar.
GBP/USD rebounds to 1.3660, USD loses momentum
GBP/USD trades with decent gains in the 1.3660 region, regaining composure following the post-NFP knee-jerk toward the 1.3600 zone on Wednesday. Cable, in the meantime, should now shift its attention to key UK data due on Thursday, including preliminary GDP gauges.
Gold stays bid, still below $5,100
Gold keeps the bid tone well in place on Wednesday, retargeting the $5,100 zone per troy ounce on the back of humble gains in the US Dollar and firm US Treasury yields across the curve. Moving forward, the yellow metal’s next test will come from the release of US CPI figures on Friday.
Ripple Price Forecast: XRP sell-side pressure intensifies despite surge in addresses transacting on-chain
Ripple (XRP) is edging lower around $1.36 at the time of writing on Wednesday, weighed down by low retail interest and macroeconomic uncertainty, which is accelerating risk-off sentiment.
US jobs data surprises to the upside, boosts stocks but pushes back Fed rate cut expectations
This was an unusual payrolls report for two reasons. Firstly, because it was released on Wednesday, and secondly, because it included the 2025 revisions alongside the January NFP figure.
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