Three Measures Identify Japanese Yen as Most Volatile Currency

Out of the top four most volatile pairs last week, the Japanese yen was the common factor.

This guest article was written by James Hyerczyk, financial analyst at FX Empire.

The recent price action in the forex markets has driven many investors to seek out the most stable forex pairs amid a sea of volatility. I’ll be happy to oblige along with offering some insight on the general concept of volatility.

Volatility

Simply stated, volatility is the price movement in a specific forex pair over time. Yes, time is very important because we often see pockets of volatility over weeks, or even volatility spikes like we saw shortly after the Brexit referendum.

Traders often fear volatility, but like fire it can be both helpful and hurtful. It all depends on how you use it. Over-leveraging your positions in an undercapitalized account when high volatility strikes can be very painful if you are on the wrong side of the market.

On the other hand, learning to embrace volatility can be helpful because, after all, what fun is it to trade and be on the right side of a market that doesn’t move?

So I say, embrace volatility, but respect it.

Volatility can’t be predicted, but it can be anticipated. Without getting into detailed mathematics, we know a few things about volatility that are helpful in day-to-day trading:

– It trends on an intraday basis,

– Its mean reverting day-to-day or week-to-week. This means that over time, it will return to its long-term averages after a significant short-term move.

– It has fast spikes up on market crashes, followed by a gradual decline back down.

– Over the long-run, it can stay in the same value range.

The main thing you should grasp from those points is that it will have different behavior depending on your reference time period.

Volatility can also be measured as:

– The percentage price movement from weekly open to weekly close.

– The percentage price movement from weekly high to low.

– Pip movement from high to low.

Current Market Conditions

Recently, most of the focus has been on the British pound because of the UK’s decision to leave the European Union.

Sure, the pound had a volatile reaction to the Brexit news on June 23/24, but it hasn’t been the most volatile currency since its initial crash. That currency is the Japanese yen.

HIGHEST-TO-LOWEST PERCENTAGE PRICE MOVEMENT OPEN TO CLOSE FROM JULY 10 TO JULY 17

GBP/JPY 6.144%

AUD/JPY 4.381%

USD/JPY 4.298%

EUR/JPY 4.139%

NZD/USD 2.586%

EUR/GBP 1.916%

GBP/USD 1.800%

GBP/CHF 1.749%

USD/CAD 0.520%

EUR/AUD 0.242%

EUR/CHF 0.178%

EUR/USD 0.136%

USD/CHF 0.740%

AUD/USD 0.101%

HIGHEST-TO-LOWEST PERCENTAGE PRICE MOVEMENT HIGH TO LOW FROM JULY 10 TO JULY 17

GBP/JPY 10.040%

AUD/JPY 7.332%

EUR/JPY 6.567%

USD/JPY 5.750%

GBP/USD 4.904%

GBP/CHF 4.407%

EUR/GBP 3.972%

NZD/USD 3.052%

USD/CAD 2.157%

AUD/USD 2.049%

EUR/AUD 1.489%

EUR/USD 1.355%

USD/CHF 1.328%

EUR/CHF 0.966%

HIGHEST-TO-LOWEST PIP RANKING HIGH TO LOW FROM JULY 10 TO JULY 17

GBP/JPY 1307 PIPS

EUR/JPY 730 PIPS

GBP/USD 630 PIPS

USD/JPY 578 PIPS

GBP/CHF 558 PIPS

AUD/JPY 557 PIPS

EUR/GBP 327 PIPS

USD/CAD 278 PIPS

NZD/USD 217 PIPS

EUR/AUD 215 PIPS

AUD/USD 154 PIPS

EUR/USD 149 PIPS

USD/CHF 130 PIPS

EUR/CHF 105 PIPS

Weekly GBPJPY

CONCLUSION

The latest statistics on market volatility covering the July 10 to July 17 time period show that the forex pair with the biggest percentage price change from open to close was the GBP/JPY.

You can see that out of the top four most volatile pairs in terms of percentage price movement from open to close last week, the Japanese yen was the common factor.

Based on last week’s data, if you want high volatility, look to trade the yen. If you want low volatility, look to trade the Swiss franc.

It almost sounds counter-intuitive because the media is always calling the yen a safe-haven currency. However, since it is the main funding currency, expanded stock market ranges, geopolitical turmoil, and the constant threat of more stimulus or an intervention by the Bank of Japan will lead to increased volatility.

Keep in mind that this list will change from week-to-week so use this as a reference and make a new one each week. Since volatility is relative to time, you can keep the same simple statistics on an intra-day, daily or even monthly basis.

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