When trading with a prop firm then you need to search for the best opportunities to optimize your profit and effectively manage risk. Selecting the right currency pairings to concentrate on is one of the important choices that traders must make. Asian and European currency pairings provide special benefits and difficulties even though large pairs like EUR/USD or GBP/USD control international forex trading. So, what sets them apart and how should prop traders approach each? Let’s see in detail.
Market Hours and Liquidity:
Trading hours and liquidity are two of the main ways that Asian and European currency pairings differ from one another.
Asian Pairs: A Quieter Market?
Asian currency pairs such as USD/JPY, AUD/JPY, and NZD/USD are most active during the Asian trading session roughly 12:00 AM to 9:00 AM GMT. Sydney and Hong Kong are also contributing but the Tokyo market is leading the way.
The problem is that the Asian session is more peaceful than the European one. As a result, price changes are often less which can be advantageous or disadvantageous. Asian pairings may be your option if you want markets that are steady and dependable. However, they can be a little sluggish if you’re looking for some rapid action. Don’t let the low volatility classification confuse you. Events in China, Australia, and Japan can set off important events, especially when economic data like China’s GDP releases or Japan’s Tankan survey are made public.
European Pairs:
Things begin to heat up at about 7:00 AM GMT when London awakens. There is a huge increase in activity for European currency pairings such as EUR/USD, GBP/USD, and EUR/GBP. London is the forex capital of the world with around 40% of all trading activity taking place there.
The good news for prop traders who scalp or employ short-term techniques is that high liquidity results in narrower spreads. The drawback? Increased volatility. Strong trends are common throughout the European session, especially when significant reports like the UK’s inflation data or Germany’s GDP are released. You can be taken unaware if you’re not ready for unexpected adjustments.
Fundamental Drivers: What Moves These Pairs?
Understanding what moves a currency pair is important for making the right forex trading decisions.
Asian Pairs: Tied to Commodities and Economic Data
Many Asian currencies like the Australian and New Zealand dollars are closely tied to commodity prices. When gold or iron ore prices rise the AUD tends to strengthen. Similarly, NZD often moves in sync with dairy prices, since New Zealand is a major dairy exporter.
Chinese economic data is another key driver. Since China is a major trading partner for Australia and Japan, weak Chinese GDP numbers can send AUD and JPY tumbling. Traders who focus on Asian pairs need to stay on top of macroeconomic trends in the region.
European Pairs: Driven by Politics and Central Banks
While European pairs are also influenced by economic data, politics plays a much bigger role. Brexit, for example, caused wild swings in GBP pairs for years. Similarly, the European Central Bank (ECB) has a major influence on the euro. If the ECB signals rate hikes then EUR/USD often surges.
US economic data and Federal Reserve policy also have a big impact, particularly on EUR/USD. Since the dollar is the world’s reserve currency, any shift in Fed policy can ripple across global markets.
Volatility and Trading Strategies: Adapting to Market Conditions
Different currency pairs behave differently and successful prop traders know how to adapt.
Asian Pairs: Better for Range Trading?
As the Asian session typically has lower volatility then many traders focus on range trading strategies. Support and resistance levels tend to hold up well meaning you can buy low and sell high within a defined range. Pairs like AUD/JPY or USD/SGD tend to respect technical levels more consistently than their European counterparts.
Another important factor? Central bank intervention. The Bank of Japan, in particular, is notorious for stepping in when the yen gets too strong or too weak. If you’re trading JPY pairs then it pays to keep an eye on BOJ statements.
European Pairs: A Scalper’s Dream
If you prefer breakout strategies then European pairs might be more your speed. Because of the high liquidity and volatility, prop traders often employ momentum-based strategies to catch sharp moves. For example, the London breakout strategy is a popular approach where traders look to ride the volatility that comes as the session opens.
That being said trading European pairs requires more discipline. Whipsaws are common and news events can create great price swings. If you don’t have tight risk management then you could see your profits evaporate in minutes.