The Asian session, which typically runs from 11:00 PM to 8:00 AM GMT, is an important trading period in the forex market. While the market tends to be less volatile compared to the London and New York sessions, it presents unique trading opportunities, especially for certain currency pairs. Understanding how to trade currency pairs during the Asian session can help traders maximise their opportunities in this less liquid but significant time window.

Understanding the Asian Trading Session

The Asian session is often characterised by lower volatility compared to the London and New York sessions. This is because fewer financial markets are active during this time. However, it is important to note that the Asian session still offers substantial movement, particularly in certain currency pairs, as key economic data from countries like Japan, China, and Australia is released.

The major currencies traded during the Asian session include the Japanese yen (JPY), the Australian dollar (AUD), the New Zealand dollar (NZD), and to a lesser extent, the Chinese yuan (CNY).

Key Factors to Consider When Trading the Asian Session

1. Liquidity

Liquidity during the Asian session is generally lower than during the European or US trading hours. The Tokyo market is the most significant during this session, but as it is only one of several global markets open, volatility tends to be lower. Currency pairs involving the JPY, AUD, and NZD are typically the most active during this period.

• High Liquidity Pairs: USD/JPY, EUR/JPY, AUD/USD, NZD/USD
• Low Liquidity Pairs: Pairs involving currencies from smaller economies, such as the South African rand (ZAR) or Turkish lira (TRY).

2. Economic Data Releases

Economic data releases from key Asian countries, such as Japan, Australia, and China, can drive price movements in currency pairs during the Asian session. Traders need to be aware of the key data releases during this time.

• Japanese Economic Data: Reports such as GDP, inflation, and trade balance often impact the Japanese yen.
• Australian and New Zealand Data: Australian employment data, trade balance, and the Reserve Bank of Australia (RBA) statements are significant for AUD and NZD movements.

3. Market Sentiment and Risk Appetite

The Asian session is heavily influenced by market sentiment and the appetite for risk. During this period, investors often react to developments from the previous day, and sentiment can shift based on economic releases from the region or other global events.

• Risk-On: When global markets are optimistic, currencies of commodity-exporting countries (AUD, NZD) may perform well.
• Risk-Off: In times of market uncertainty, the Japanese yen, being a safe-haven currency, tends to appreciate.

4. Low Volatility Opportunities

Because the Asian session tends to have lower volatility, this time is ideal for trading certain strategies that benefit from smaller price movements, such as range trading or scalping.

• Range Trading: Identify support and resistance levels and trade the price action within these boundaries.
• Scalping: In low-volatility environments, scalping allows traders to take advantage of small price changes over short time periods.

Best Currency Pairs to Trade During the Asian Session

1. USD/JPY

USD/JPY is one of the most popular currency pairs during the Asian session, primarily due to the activity of the Tokyo market. Japan’s economic data, central bank policies, and geopolitical factors often influence the yen’s movements.

• Key Drivers: Japanese economic reports, risk sentiment, US economic data, and central bank policies (Bank of Japan).

2. AUD/USD

AUD/USD is another key pair during the Asian session. The Australian dollar is sensitive to global commodity prices, particularly gold and oil, which can be influenced by economic data from China, Australia’s largest trading partner.

• Key Drivers: Australian economic data (e.g., GDP, employment), commodity prices (especially metals), and Chinese economic reports.

3. NZD/USD

The New Zealand dollar (NZD) behaves similarly to the Australian dollar due to New Zealand’s reliance on commodities. It can be impacted by global risk sentiment, as well as economic data releases from both New Zealand and its trading partners.

• Key Drivers: New Zealand economic data, global commodity prices, risk sentiment, and RBNZ policy.

4. EUR/JPY

EUR/JPY can see some movement during the Asian session, although it tends to be more active during the European session. However, the pair can be influenced by Japanese data and economic events in Europe.

• Key Drivers: Japanese economic data, European economic indicators, and global market sentiment.

5. GBP/JPY

GBP/JPY can also be traded during the Asian session, but it tends to be more volatile during the London session. Nonetheless, it is influenced by the movements of the Japanese yen, so it can be an interesting pair for traders who want to take advantage of shifts in market sentiment.

• Key Drivers: Japanese data, UK economic data, and global risk sentiment.

Trading Strategies for the Asian Session

1. Range Trading

Because volatility is lower during the Asian session, range trading can be a profitable strategy. In this approach, traders look for currency pairs to stay within a defined range, bouncing between support and resistance levels.

• How It Works: Identify key support and resistance levels based on previous price action. Enter trades when the price approaches these levels and exits when the price reaches the opposite side of the range.

2. Scalping

Scalping is a popular strategy during the Asian session due to the relatively low volatility. Scalpers take advantage of small price movements by entering and exiting trades quickly.

• How It Works: Enter positions when the market moves slightly in your favour and close them quickly to capture small profits. This requires quick decision-making and the ability to handle multiple trades in a short period.

3. Trend Following (with Caution)

Although the Asian session is not known for strong trends, traders can still use trend-following strategies when a clear trend emerges. This often occurs when significant economic data releases from Japan or Australia signal a potential shift in market sentiment.

• How It Works: Identify a trend using moving averages, trendlines, or momentum indicators. Enter trades when the price is moving in the direction of the trend, and use stop-loss orders to manage risk.

4. News Trading

Economic data releases, especially from Japan, China, and Australia, can create significant volatility during the Asian session. Traders who are skilled at reacting to news can profit from sharp price movements following important announcements.

• How It Works: Monitor economic calendars for key data releases (e.g., Japanese GDP, Australian employment numbers). Enter trades based on the market’s reaction to the news, being aware of the potential for rapid price swings.

Practical Tips for Trading the Asian Session

1. Set Realistic Expectations: The Asian session tends to be less volatile, so don’t expect large price movements. Focus on smaller, more consistent profits.
2. Use Tight Stops: Due to lower liquidity and higher spreads, tight stop-loss orders are essential to protect your capital.
3. Monitor Key Economic Releases: Keep an eye on economic data from Japan, China, and Australia, as these are the major drivers of the Asian session.
4. Trade the Most Liquid Pairs: Focus on the most liquid currency pairs such as USD/JPY, AUD/USD, and NZD/USD to avoid excessive slippage and higher spreads.
5. Stay Informed on Global Risk Sentiment: Market sentiment can shift quickly, so watch for global news that could impact the overall mood of the market, such as geopolitical events or market-moving news.

FAQs

What is the best time to trade the Asian session?

The Asian session typically runs from 11:00 PM to 8:00 AM GMT, with the most liquidity and price action occurring during the Tokyo market’s opening hours (11:00 PM to 2:00 AM GMT).

Which currency pairs are best to trade during the Asian session?

USD/JPY, AUD/USD, NZD/USD, and EUR/JPY are among the most traded pairs during the Asian session due to their high liquidity and strong correlations with the region’s economic conditions.

Why is the Asian session less volatile?

The Asian session has fewer active markets compared to the European and US sessions, resulting in lower volatility and smaller price movements.

Can I use scalping strategies in the Asian session?

Yes, scalping is a popular strategy during the Asian session due to its lower volatility. Traders can take advantage of small price movements to make quick profits.

How does news affect currency pairs in the Asian session?

Economic data from Japan, Australia, and China can significantly impact currency pairs during the Asian session, especially if the news surprises the market or deviates from expectations.

Conclusion

Trading during the Asian session requires a different approach than during the more volatile European or US trading hours. While the market tends to be quieter, there are still opportunities for traders who use strategies like range trading, scalping, and news trading. By staying informed on key economic data releases, global market sentiment, and using risk management strategies, traders can make the most of the Asian session’s unique characteristics.