2018 Forex is pretty consistent. There were no serious incidents in the global economy, and this affected the major currency pairs in the market. Last year's trend continued this year, when the US dollar rose slightly against other monetary units.
Nevertheless, the traders' benefit was not very significant. The euro completed the previous year on the rise, but in 2018 it is not very strong. The yen was fairly flat and fluctuated slightly around its current market value. But some monetary units in relation to each other recorded higher volatility than others. The relationship between them is expressed by the ratio of their prices. The article provides a table of the most volatile Forex currency pairs and a review of mid-2018 currencies.
What is volatility?
First of all, you need to have a basic understanding of the Forex market. Volatility is a term that describes the movement of a price over a period of time. The more volatile the market, the bigger it is. If the market is less volatile, the price changes less.
In addition, the movement of value can be either proportional or absolute. Both cases occur when trading currency under the terms of the margin contract. For price comparison, proportional measurements are more useful. But in order to evaluate a particular currency pair, reviews recommend doing this in absolute terms. For example, traders may want to know what a typical course change occurs over a certain period of time.
How volatility is measured
One of the most common indicators used by traders is the moving average. This indicator displays the normal market movement for a certain period. Its duration can be any that the trader wishes to choose. There are other, more complex types of moving averages.
To determine which currency pairs are the most volatile, reviews recommend using the average true range as well. It measures the average variation in market prices over a given period. The indicator may vary depending on the length of the observed period.
When trading in the Forex market, there are times when there are very few changes and the price remains within the specified range. This describes a market with low volatility. However, the announcement of economic data can lead to sharp and strong price increases. This situation represents a surge in volatility.
The most volatile currency pairs
The market has established certain trends due to data from previous years. Most currency pairs in the market, as a rule, differ in the level of volatility based on their status. For combinations of major currencies such as USD / GBP, volatility never gets too high or too low. This is due to the stability of the participating currencies and the demand for them in the global economy. Exotic pairs like USD / SEK, on the other hand, tend to be very volatile. This is due to the different attitude and level of demand towards them. Not surprisingly, GBP / NZD and USD / SEK are marked by extremely high volatility.
Of the major currencies, the most volatile on average for the year were USD / JPY and GBP / USD. The level of their volatility is still marginal and not as sharp as fluctuations in the rate of exotic pairs. As a rule, they take many traders by surprise.
The goal of each Forex bidder is to decide how best to deal with volatility by choosing the best trading strategy. This is usually determined when a trader has to choose an account type before trading. Different accounts allow traders to identify different risks and rewards in trading.
Below is a table of the most volatile currency pairs in mid-2018.
The safest options
According to traders, the calmest and most predictable currency pairs are almost always the main currency. And in 2018, nothing has changed. The two pairs with the lowest average volatility are EUR / USD and USD / CHF.
The exchange rate between the euro and the dollar is quite consistent even at a time when difficulties arise in the economies of the respective countries. This currency pair is quite stable due to its popularity in the market. Daily trading volumes EUR / USD always remain one of the highest, and the demand as a result provides greater stability. The two key economies that support these currencies also have the greatest economic power. The EUR / USD pair is thus the largest and most liquid in the world. According to reviews, for beginners who want to do trading, this currency pair offers the best opportunities to gain trading experience.
What you need to know about volatility
Although major currency pairs are usually less volatile than others, this is not always the case. There have been many cases where volatility has been driven by current events. For example, voting for Brexit in 2016 caused a lot of upheaval in the market, and all the pairs in which the British pound participated became very unstable. Speculators also play a role in destabilizing the course. Therefore, it is important to note that the most volatile currency pairs on the Forex appear due to:
- market speculation;
- announcements of basic economic data;
- currency liquidity changes in the pair.
These factors, among other things, can cause volatility levels to change. Exotic pairs with little-known monetary units with volatile liquidity are almost always volatile if they are paired with a base currency.
Euro / dollar
This is the most active, although not the most volatile Forex currency pair of 2018. The benefits of trading EUR / USD are widely known. One of them is the high level of liquidity of the dollar and the euro, which contributes to the beneficial conduct of transactions. There are a large number of liquid financial instruments available for this currency pair, which allows traders to trade both in the spot market and in futures, options and CFDs. High transparency of the EU and US economies also provides a high level of predictability for the monetary units of these countries.
Price dynamics can usually be calculated using technical analysis. The euro survived a good 2017, bypassing all political traps. In 2017, United States markets rose significantly on tax cuts. The monetary policy of the US Federal Reserve and the ECB in the first months of 2018 determined the difference in the key interest rates of the two countries.
If Trump's tax plan along with aggressive tax incentives takes effect, then the dollar will continue to grow. On the other hand, any delay on the part of the ECB in lowering interest rates, the expectation of lower inflation and the sensitivity of European markets to this forecast for the euro will be bearish.
Dollar and Japanese Yen
According to traders, the pair USD / JPY is one of the best traded in Asian markets. It accounts for 17% of all transactions in the global foreign exchange market. The pair is associated with lower spreads and is sensitive to political relations between the United States and the Far East. JPY increased in spring 2018 amid a weakening dollar. This is surprising since a stronger United States economy was forecast at the beginning of the year. However, by the middle of the year, the dollar regained its position.
The Bank of Japan announced a reduction in purchases of long-term bonds, which led to lower yields and lower prices. Moreover, it was confirmed that the country would maintain its super-liberal monetary policy. Ideally, this was supposed to weaken JPY, but so far the yen against the US dollar remains at the beginning of the year.
USD / JPY is one of the three most volatile currency pairs in the international market. Although this provides good opportunities for experienced traders, due to the wide range of fluctuations, reviews recommend that beginners be careful.
British pound and US dollar
This pair makes up 12% of the total trading volume in the foreign exchange market and is extremely unstable. It is mainly used by professional traders who practice short-term aggressive strategies. One of the most volatile currency pairs allows you to quickly make a profit. However, reviews warn that this is associated with a high risk.
At the beginning of 2018, GBP / USD traded amid a weakening dollar. The news that senior EU officials are taking a more British-friendly stance at the second phase of Brexit negotiations in 2018 has helped the currency pair grow. However, since mid-April, there has been a steady drop in the pound, which has already reached a minimum of a year ago.