Tug Of War Sparks Volatile Trading In EURUSD

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Best Time to Day Trade the EUR/USD Forex Pair

Best hours of the day to day trade the EUR/USD

Image by © The Balance 2020

The allure of forex day trading is that you can trade 24-hours a day. Unfortunately, that doesn’t mean you should. Day traders should only trade a forex pair when it’s active and there’s lots of volume and transactions occurring. The EUR/USD has certain hours which are acceptable for day trading because there is enough volatility to generate profits, which are likely higher than the cost of the spread or commission. To be efficient and capture the largest moves of the day, day traders hone in even further, often day trading only during a specific 3–4-hour window.​

The Impact on EUR/USD Volatility

The forex market operates 24-hours a day during the week because there’s always a global market open somewhere due to time zone differences. However, not every global market actively trades every currency, so different forex pairs are actively traded at different times of the day.

When Europe is open for business, pairs that involve the euro (EUR) or British pound (GBP) are more actively traded. When the U.S. and Canada are open for business, pairs that involve the U.S. dollar (USD) and Canadian dollar (CAD) are more active.

If day trading the EUR/USD, the times that are likely to be most active for the pair, on average, will be when London and New York are open. Those markets are open between 0800 and 2200 Greenwich Mean Time (GMT). To see major market hours in your own timezone, or your broker’s (charts) time zone, use the forex market hours tools.

Acceptable Times to Day Trade EUR/USD

The hourly volatility chart shows how many pips the EUR/USD moves each hour of the day (times are in GMT). There is a significant increase in the amount of movement starting at 0700, which continues through to 2000. After this, movement each hour begins to taper off, so there are likely to be fewer big price moves day traders can participate in.

Day traders should ideally trade between 0700 and 2000 GMT. Trading outside of these hours, the pip movement may not be large enough to compensate for the spread or commissions.

Volatility changes over time, but the most volatile hours generally do not change too much. 0700 to 2000 GMT will continue to be the most acceptable time to day trade, regardless of whether daily volatility increases or decreases. Note that daylight savings time may affect trading hours in your area.

Forex Volatility Calculator

What is volatility?

Volatility is a term used to refer to the variation in a trading price over time. The broader the scope of the price variation, the higher the volatility is considered to be. For example, a security with sequential closing prices of 5, 20, 13, 7, and 17, is much more volatile than a similar security with sequential closing prices of 7, 9, 6, 8, and 10. Securities with higher volatility are deemed riskier, as the price movement–whether up or down–is expected to be larger when compared to similar, but less volatile, securities. The volatility of a pair is measured by calculating the standard deviation of its returns. The standard deviation is a measure of how widely values are dispersed from the average value (the mean).

The importance of volatility for traders

Being aware of a security’s volatility is important for every trader, as different levels of volatility are better suited to certain strategies and psychologies. For example, a Forex trader looking to steadily grow his capital without taking on a lot of risk would be advised to choose a currency pair with lower volatility. On the other hand, a risk-seeking trader would look for a currency pair with higher volatility in order to cash in on the bigger price differentials that volatile pair offers. With the data from our tool, you will be able to determine which pairs are the most volatile; you can also see which are the most – and least – volatile days and hours of the week for specific pairs, thus allowing you to optimize your trading strategy.

What affects the volatility of currency pairs?

Economic and/or markets related events, such as a change in the interest rate of a country or a drop in commodity prices, often are the source of FX volatility. The degree of volatility is generated by different aspects of the paired currencies and their economies. A pair of currencies – one from an economy that’s primarily commodity-dependent, the other a services-based economy – will tend to be more volatile because of the inherent differences in each country’s economic drivers. Additionally, different interest rate levels will cause a currency pair to be more volatile than pairs from economies with similar interest rates. Finally, crosses (pairs which do not include the US dollar) and ‘exotic’ crosses (pairs that include a non-major currency), also tend to be more volatile and to have bigger ask/bid spreads. Additional drivers of volatility include inflation, government debt, and current account deficits; the political and economic stability of the country whose currency is in play will also influence FX volatility. As well, currencies not regulated by a central bank – such as Bitcoin and other cryptocurrencies – will be more volatile since they are inherently speculative.

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How to use the Forex Volatility Calculator?

At the top of the page, choose the number of weeks over which you wish to calculate pairs volatility. Notice that the longer the timeframe chosen, the lower the volatility compared to shorter more volatile periods. After the data is displayed, click on a pair to see its average daily volatility, its average hourly volatility, and a breakdown of the pair’s volatility by day of the week.

Analyzing EUR/USD Volatility for Day Trading Purposes

Cory Mitchell, CMT

The 10-week average for daily movement (high minus low) in the EURUSD is 43 pips. That’s the average daily range for the most heavily traded currency pair in the world.

Over the last 10 years, the daily average range has spent most of its time above 60 pips, and has even spent considerable time above 100 pips.

Near the start of 2020, the EURUSD dropped below that 60 pip level and has mostly stayed there. For many traders, this has made day trading the EURUSD more difficult (compared to the past) because there is less movement to capture. It is harder to jump into and out of trades with a profit when accounting for the spread and commissions.

This has been somewhat offset by some brokers offering lower spreads, such as 0.1 pips. The spread with one of my brokers is typically 0.1 pips, which makes it easier to capture even small moves. Trading with a larger spread means putting yourself at a significant disadvantage.

I wanted to discuss volatility and day trading because it can have a big effect on how we trade and our profitability. Also, new traders probably don’t know that this pair has historically traded very differently, and possibly traders that have been around for at least a few years may be struggling with the steady decline in volatility.

So let’s look at how EURUSD volatility is now, and how we can use those statistics to aid our trading.

EURUSD Volatility by Day of the Week and Hour of Day

First, let’s look at volatility by hour of the day. This chart is in GMT time. Adjust to your own time zone accordingly.

The hours with the most movement are from 0700 to 1600. This corresponds with the London market. There is an uptick in activity when the New York session kicks at 1300.

If you are after movement, trading should be done between 0700 and 1600.

The day of the week sometimes matters, but recently not so much. During some periods certain days of the week tend to be much quieter than others. Therefore, it is worthwhile to check the stats periodically.

Here is the data over the past five weeks. Mondays and Wednesdays have had less movement than the other days, and Fridays have had the most.

The 10-week average still has Friday as the movement leader, but the other days show similar volatility.

Factoring Volatility Into Trading

If things are working for you, don’t change anything. Don’t fix it if it isn’t broken.

If you have been struggling with your EURUSD day trading, make sure you are using a low spread broker. This on its own can make a big difference.

Next, consider the range already in place when you start trading. If you are trading the US session and the price has already trended higher by 60 pips, and you are buying expecting it to go another 10 or 15 pips, you’re fighting against the averages. Remember, on Monday to Thursday—over the last several weeks—the price has only moved on average 40 pips.

While certain days will certainly exceed the average in terms of movement, some days will be less. If you are trading every day (or almost every day) keep your expectations within the averages. Focus on trends that are in play inside the averages. Don’t take trades expecting the price to make a big move outside the averages. For further reading on this, see the Daily Range Day Trading Strategy.

Mark the high and the low, so far in the day, on the chart. Typically this distance is going to be 60 pips or less (in current conditions). If the high and low are already 60 pips or more apart, targets placed outside that range have less chance of being hit. Of course, each trade has its own odds of success, but overall it is important to keep the context of volatility in mind.

I also like to set the y-axis of my charting platform to whatever the daily range is, plus a small buffer. So right now, the y-axis should cover an approximate 50 pip area. This creates a visual baseline each day. If the pair has only moved 10 pips during the day, the y-axis will typically only show 10 pips, making it look like there is lots of movement and nice trends. But this is a visual illusion. If you keep your scale at 50 pips you will be able to instantly see if this is a typical day or if volatility is lower or higher than normal.

If volatility is higher on a particular day, I will expand the y-axis to include all the day’s price action. But I don’t shrink the y-axis below 50 pips. I do this so I don’t even bother trading if the daily trading range is small. Small trading ranges don’t suit my trending day trading style. If the price action only takes up a tiny portion of the 50-pip screen, and the price action looks all tiny and squished, I instantly know the day is not worth day trading (for me) unless the daily range starts to expand.

Day Trading the EURUSD

If you have gotten used to trading in this ultra-low EURUSD volatility, know that historically the pair has been more volatile. Start preparing now for if more volatility returns.

If you have struggled in the low volatility environment, there are still profits there. But that may mean not trading some days. Get a low spread broker, stay within the daily movement averages, and always start the day with your y-axis at a certain height to provide a visual baseline of whether there is decent movement or not.

By Cory Mitchell, CMT. Join me on Twitter @corymitc.

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using leverage.

EUR/USD: Expect US NFP Jobs Data to Spark Forex Volatility

EURUSD VOLATILITY SPIKES AROUND US NONFARM PAYROLL DATA RELEASE

  • Spot EURUSD fluctuates +/- 36 pips on average in response to monthly US nonfarm payrolls employment data, which compares to +/- 4 pips on average otherwise
  • Heightened forex volatility around high-impact economic events and data releases impacting spot EURUSD like monthly US NFP data warrants extra caution by traders
  • Find out How to Trade the Most Volatile Currency Pairs

EURUSD is the world’s most liquid and heavily traded forex pair. This can make spot EURUSD price action less volatile compared to other pairs such as AUDJPY or emerging market currencies. Yet, that is not to say spot EURUSD goes without brief episodes of large price swings.

Volatility, broadly speaking, arises during times of heightened market uncertainty and in response to high-impact economic events and data releases. As such, closely watched economic indicators that are largely viewed as market moving or having potential to sway central bank monetary policy decisions can be expected to spark forex volatility. One such economic event that usually sparks a dramatic move in spot EURUSD is the monthly release of US nonfarm payroll employment data.

SPOT EURUSD PRICE CHART: WEEKLY TIME FRAME (JANUARY 2020 TO JULY 2020)

US nonfarm payrolls (NFP) data – also referred to informally as the monthly US jobs report – is released by the Bureau of Labor Statistics (BLS), which provides market participants with a detailed summary of the employment situation and labor market conditions in America. In light of the Federal Reserve’s stated dual-mandate of stable prices and maximum employment, it is unsurprising that US Dollar forex traders place great importance on the monthly US NFP report.

US NFP REPORT SPARKS FOREX VOLATILITY IN SPOT EURUSD

In fact, spot EURUSD volatility jumps exponentially around the time monthly US nonfarm payroll data is released. Judging by the currency market’s historical reaction to the US NFP report, EURUSD forex traders might expect spot prices to swing +/- 36 pips on average around the 15-minute bar when the jobs data is published. This compares to the average 15-minute change in spot EURUSD of +/- 4 pips dating back to January 2020.

SPOT EURUSD AVERAGE CHANGE IN RESPONSE TO US NONFARM PAYROLL DATA RELEASE

What might explain the sharp reaction in spot EURUSD to the release of monthly US NFP data? As with forecasting any number, the actual outcome of the report remains highly ambiguous – even top economists have difficulty estimating the headline number for monthly change in nonfarm payrolls. Consequently, the knee-jerk reaction in spot EURUSD surrounding the monthly US jobs report release can be principally explained by market participants aligning past expectations with current fundamentals. As such, it is worth noting that volatility is typically greater when the actual data reading differs materially from what is expected according to market forecasts.

That said, the sharp dip immediately following the US NFP report release indicates that, on average, the US Dollar appreciates relative to the Euro around this economic event. This could be explained by US NFP data surprises to the upside broadly outweighing surprises to the downside over the last 4 years, which is suggested by the cumulative drift lower in spot EURUSD surrounding the monthly US jobs report.

HOW SPOT EURUSD PERFORMS AROUND MONTHLY US JOBS REPORT RELEASE

While past performance is not indicative of future results, analyzing historical price action in spot EURUSD around monthly US nonfarm payroll reports reveals that volatility tends to rise and provides its own degree of insight for forex traders. That said, it will likely prove beneficial to incorporate forex trading risk management techniques into your strategy – such as setting tighter stops or reducing leverage – particularly in consideration of heightened volatility that could be expected in spot EURUSD around monthly US nonfarm payroll reports.

FOREX TRADING RESOURCES

  • Download the Q3 DailyFX Forecasts for comprehensive fundamental and technical analysis on major currencies like the US Dollar and Euro in addition to equities, gold and oil
  • Sign up for Live Webinar Coverage of the financial markets hosted by DailyFX analysts where you can have all your trading questions answered in real – time
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— Written by Rich Dvorak , Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

EURUSD Trades in a Descending Triangle; ECB President Lagarde to Spark a Breakout?

The euro had a volatile end to November against the US dollar. EURUSD opened Friday’s trading at 1.1000 and dropped to an intraday low of 1.0980. Then, sometime during the New York session, EURUSD rallied to a high of 1.1027 before closing at 1.1019.

However, looking at the currency pair’s performance for the month of November, the euro lost over 130 pips to the dollar. EURUSD began November at 1.1150.

Given the lack of top-tier economic reports from both the US and euro zone, it may be safe to say that the move on Friday was mostly driven by profit taking. Today could be different as we have two important forex news due for EURUSD.

ECB President Lagarde Speech Scheduled Today

At 2:00 pm GMT, ECB President Christine Lagarde is scheduled to make a speech. This is going to be her second one as the head of euro zone’s central bank. In her first speech, the euro weakened against most of its counterparts as she called for governments to implement fiscal policies that align with the ECB’s monetary policy. If she hints that the central bank is open to easing even further in the future, we could see the euro slide again in today’s trading.

ISM Manufacturing PMI Eyed to Print at 49.2

Across the Atlantic at 3:00 pm GMT, the ISM manufacturing report for November is due. The report is eyed to print at 49.2. This follows after October’s 48.3 reading which suggests that while business conditions remain in contraction (because the forecast is below the 50.0 baseline reading), they are improving.

European PMIs Due Today

Other second-tier data are also due for release today. At 8:15 am GMT, the Spanish manufacturing PMI for November is expected to print at 46.5. Meanwhile, at 8:45 am GMT, the Italian manufacturing PMI is seen at 47.5. At 8:50 am GMT, the French final manufacturing PMI is eyed at 51.6. Then at 8:55 am GMT, the German final manufacturing PMI is seen at 43.8. Lastly, at 9:00 am GMT, euro zone’s final manufacturing PMI is seen at 46.6.

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EURUSD Outlook

On the 4-hour chart, we can see that EURUSD has been holding on to support at the 1.1000 psychological handle. It has also been making lower highs since November 1. The currency pair looks like it has formed a descending triangle which is typically interpreted as a bearish indicator in forex trading.

Worse-than-expected euro zone data, a dovish ECB speech, or positive US data could push EURUSD lower. It may soon re-test November lows around 1.0990.

On the other hand, better-than-expected euro zone data, a hawkish ECB speech or negative US data could spark a rally to the falling trend line. The currency pair may test resistance at 1.1050.

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