The Most Volatile Forex Pairs You Should Look Out For

For traders looking to capitalize on short-term forex price movements, keeping an eye on the major currency pairs displaying the highest levels of volatility is key. These volatile Forex pairs tend to offer the potential for greater profit opportunities but also come with enhanced risk due to their unpredictability. In this in-depth guide, we’ll explore 8 of the most volatile majors on the market based on past performance, highlighting why they exhibit heightened instability and how you can approach trading them effectively.

How Market Volatility Works?

Let’s start with an overview of what drives currency volatility generally. Several aspects converge to cause some currency pairs’ values to fluctuate more than others on an intraday or daily basis. Notably, the economic disparity between the two nations amplifies responsiveness to macro news. Divergent interest rate policies or diverging growth magnify reactions. Political uncertainty also correlates with bigger swings, as events shake investor confidence like upcoming elections or policy changes.

Links to commodities like oil or metals translate quickly to quoted price movements. Close trade ties make some currencies highly interconnected and co-dependent, which enhances volatility. Lower volumes mean order flow from institutional players can move prices more substantially on pairs with thinner liquidity. Demand for safe-haven currencies drives their volatility higher during bouts of fear and risk aversion more noticeably as well.

Volatile Forex pairs saddled by these characteristics naturally see prices oscillate further in reaction to new information at a quicker clip, offering opportunities for well-timed traders. We’ll now examine each high-beta pairing individually; outlining their typical behaviors, influencing factors, and best trading practices. Examples will bring concepts to life. By understanding these jumpier currencies’ nuances, you can develop targeted strategies leveraging their inherent swings to your potential advantage through careful risk management. Read on to gain valuable insights into price action in today’s most changeable liquidity pools.

USD/JPY

The dollar-yen frequently tops lists of most liquid pairs globally. Yet political divergences between the US and Japan coupled with safe-haven characteristics enhance its volatility. The pair strongly echoes global risk appetite and reacts sharply to US economic surprises like Non-Farm Payroll, CPI, etc affecting rate hike bets, geopolitical tensions like trade wars dampening investors’ risk tolerance, natural disasters heightening yen safe-haven demand, and dovish/hawkish shifts in Fed/BoJ monetary policy stances. Daily ranges between 100-150 pips are regular, with 200+ pip spikes possible around high-impact events. Its liquidity allows opening positions easily, but also closing them promptly on short notice demands flexibility.

AUD/JPY

Commodity prices and economic ties linking Australia to China make the Aussie dollar highly sensitive to the world’s second-largest economy. Coupled with negative Japanese rates, this produces a cross exposing traders to China GDP figures, property sales and trade balance numbers, Chinese monetary and fiscal policy adjustments, Aussie labor market reports and inflation reads, and risk-on/risk-off sentiment shifts spurring flights to safety. Intraday volatility over 120-150 pips is not unheard of around such releases. The pair demands maintaining flexibility to adapt to its exaggerated price swings.

EUR/JPY

Combining the euro’s sensitivity to political uncertainty with safe-haven yen flows creates significant responsiveness in this pairing. It fluctuates strongly on European Central Bank rate decisions and asset purchase programs, German/French economic data like factory orders, GDP, inflation, and Italian/Greek debt issues sparking broader risk aversion, and unpredictable geopolitical tensions between Europe and Asia. Daily trading ranges commonly surpass 100 pips. The cross-currency nature enhances the effects of mutually impacting macro themes.

GBP/JPY

Massive interest rate differentials between the Bank of England and the Bank of Japan turbocharge volatility in the sterling yen. Its price swings intensify around UK employment changes, wages, retail sales or GDP surprises, Brexit developments like critical EU negotiations and votes, BOE rate hikes/easing signals versus dovish BoJ policy, and broad-based investor risk sentiment shifts. 150+ pip daily fluctuations are not unheard of. Its extremely leveraged dynamic demands extra caution on position sizes.

USD/CHF

As a pairing directly correlated to geopolitical tension levels, the dollar franc is prone to exaggerated jumps. Triggers include US-China trade conflicts increasing demand for safe assets, Middle East instability raising risk aversion levels, weakening global growth outlooks fueling risk-off flows, and SNB currency intervention reminders keeping volatility lofty. Daily ranges regularly top 100 pips and sometimes stretch beyond 150. Its liquidity is convenient but its reactionary nature is less straightforward.

CAD/JPY

Canada’s commodity linkages render the loonie highly reactive to oil prices and Chinese economic signals, which ripple through CAD/JPY. Its gyrations flare on Canadian jobs data, CPI, retail sales or manufacturing surprises, WTO Sino-American trade disputes impacting resource demand, OPEC+ production cuts/hikes moving crude futures, and Japanese capital flows as yen funds buy Canadian assets. Pip swings over 120-150 intraday constitute common fluctuations to leverage with care.

NZD/USD, AUD/USD

These so-called “commodity currencies” anchored to Australian and New Zealand resource sectors see their values ebb and flow sharply with Chinese manufacturing PMIs, GDP growth or government spending, fluctuations in metal prices like copper, iron ore or lumber, Australian/New Zealand employment changes, and risk appetite shifts altering demand for carry trades. Daily price ranges averaged 120-150 pips historically. Optimizing entry points amid erratic moves demands discipline.

Effective Volatility Trading

To benefit from volatile forex pairs, you must focus on enhancing entries near technical levels, keeping position sizes very modest, and ensuring profits outpace losses many times over on an expected value basis. Other best practices include trading during high-impact scheduled event risk using limit orders, looking for loss-cutting opportunities on quick whipsaws, analyzing volatility contraction/expansion for potential medium-term trends, looking to volatility spikes as potential profit-taking signals on profits, and using intraday charting for improved visibility into short-term gyrations.

Monitoring these inherently changeable majors, traders stand to glean insight into market reactions while capturing strategic opportunities arising from their amplified price fluctuations. Just practice caution matching position sizes to each pair’s unique behavioral profile.