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Forex: Which Currency Pairs Have the Widest Trading Ranges?

Last updated 12/28/2009 10:50 AM ET (GMT -5) 5 Comments

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Kathy Lien

Director of Currency Research, GFT

With many markets around the world closed for Boxing Day, trading has been extremely quiet.  Aside from the Dallas Fed Manufacturing Activity report, which strengthened in the month of December, there have been no other economic releases on the calendar.  Equities hit a new yearly high this morning on news that retail sales have been better than expected this holiday season and receipts at the box office this weekend hit the highest level ever.

Therefore we take this opportunity to update one of our most heavily requested reports on which currency pairs have the widest trading ranges. Although volatility in the foreign exchange market has contracted over the past year, overall trading ranges can vary by currency pair and knowing the average trading range for each pair can be very useful for forex traders because it can help determine their tradeability. To be more specific, for traders that cannot stomach volatility, a pair like EUR/CHF may be more appropriate because of the comparatively smaller average daily trading range.  For traders that thrive on trading the Googles of the currency market, meaning the currency pairs with wide trading ranges, then a pair like EUR/NZD may be more suitable.

We have sorted the 24 more actively traded currency pairs by their average daily trading range by pips. Please remember that each currency pair has a different pip value so a 100 pip move in EUR/GBP is more significant in dollar terms than a 100 pip move in the NZD/USD. The average daily trading ranges are calculated from the beginning of 2009 to the present. We have also included a chart comparing the 2009 and 2008 average daily trading ranges.

 Source: FX360.com

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Comments (5)

yen-jan

December 28, 2009 at 12:35 PM ET

The same chart in % terms would be interesting.

Stephan Smith

December 28, 2009 at 03:31 PM ET

GREAT Report!

This may influence what currency pairs I'll deal with.

Neal

December 28, 2009 at 04:37 PM ET

If you could give a $ value to these pip movements based on today's pip value, it would also show how a smaller movement in a higher pip value pair could be a greater benefit as well. For example, based on a 100,000 lot size a 330 pip movement in EUR/NZD is worth approximately $2343, while a 280 pip movement in the GBP/JPY is worth approximately $3055. So even though the GBP/JPY doesn't move as much, the value of each pip really makes it worth while (or a detriment if you are wrong).

Ken Long

December 29, 2009 at 12:04 PM ET

This is pretty easy to do on ones own using a long term ATR. I use a 50 bar ATR for this and have set up profiles on MetaTrader showing all the pairs traded on FXDD for all of my upper time frames. What is most noticable is that the pairs with the wisest range also have the largest spreads (other than the EURUSD). This dosent have a big affect on a long term trader, but anyone who trades intraday will have to notice this. If you divide these numbers by the spread you pay, you will get a better representation of the trading range available in relation to the cost.

Ken Long

December 29, 2009 at 12:41 PM ET

Using FXDD's spreads, the EURUSD with a 2 pip spread, is always on top in relation to the cost, on every time frame, followed by the GBPUSD and the EURJPY with 4 pip spreads. This is all as expected.

Interestingly though, the GBPJPY, GBPCHF, and EURCAD, the three highest volitility pairs avaiable on FXDD, are all displaced by the AUDUSD, USDCHF, and even the USDJPY, when looked at in relation to their cost.

Further we have to keep in mind that volitility works both ways. It affects both the risk and the reward. Therefore, while a high volitility pair may give us more pips, it will also pose more risk, and therefore require a smaller position size, negating much of the perceived benefits. Add to this the increased cost and your almost always better off trading the more cost efficient pairs.

Of course there will always be disagreements from the long term traders who arent concerned with a couple of pips in spread cost, but the risk reward ratio still stands. There is virtually no difference in trading the GBPJPY and the USDJPY from a risk reward basis. Visually they are almost identical on every time frame, even though the GBPJPY is known to be one of the strongest trading pairs, and the USDJPY is known to be one of the lamest.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.