The year 2021, despite the global health crisis, did not witness severe incidents in the global economy, and this had a positive impact on the major currency pairs in the market. This year, most of the currency pairs maintained their consistent performance, and some rose to levels that encourage investors around the world to buy them.
However, the benefits to traders weren’t very great. The euro rose last year, but it was not very strong in the year at the beginning of 2021. The yen has been relatively steady and fluctuates little around the current market. However, some of the other major currencies recorded higher Volatility than others. This article will discuss the most volatile currency pairs and an overview of the essential pairs in 2021.
What is Volatility in currency pairs
First, you must have a basic understanding of the Forex market. Volatility is a term that describes the movement of prices over some time. The more volatile the market is, the larger it is. If the market is less volatile, the price changes less.
Additionally, the movement of value can be both proportional and absolute. Both situations occur in trading foreign currency pairs under a margin contract. To evaluate a particular currency pair, reviews recommend that it be done in complete terms. For example, traders may want to know about typical price changes that occur over a while.
How is Volatility measured
The moving average is one of the most popular indicators used by traders. This indicator shows the normal movement of the market for a certain period. Its duration can be what the trader wants to choose.
To identify the most volatile currency pairs, the reviews recommend using the Average True Range as well. It measures the average change in market prices over a given period. The indicator may vary depending on the length of the period observed.
When trading in the Forex market, there are instances when there is very little change, and the price remains within the specified range. This describes a market with low Volatility. However, the release of economic data could lead to a sharp spike in currency pairs’ prices.
The most volatile currency pairs
Most of the currency pairs in the market are usually marked by a level of Volatility based on their position. For significant currency groups such as the GBP / USD, the Volatility does not become too high or too low. This is due to the stability of currencies in this pair and the volume of demand for them in the global economy. On the other hand, exotic pairs, such as the USD / SEK, are usually volatile due to the different demand levels.
Among the most important currency pairs, the USD / JPY and GBP / USD were the most volatile currencies on average last year. Its level of Volatility remains marginal and not as severe as the fluctuations during exotic pairs.
The goal of every forex trader is to determine how well Volatility is handled by choosing the best trading strategy. This is usually determined when a trader needs to select an account type before trading. Different accounts allow traders to define various risks and rewards in trading.
The best options
According to reviews of traders, the calmest and most anticipated pairs are always the major currency pairs. And this year, the situation has not changed much. The two pairs with the lowest Volatility are the EUR / USD and USD / CHF.
The exchange rate between the euro and the dollar is relatively stable even in times when difficulties arise in the countries’ economies concerned. This currency pair is quite stable due to its popularity in the market. Daily interest rates for EUR / USD trading always remain among the highest, and as a result, demand provides more stability. The two major economies that support these currencies also have the most significant economic strength. Thus the EUR / USD pair is the largest and most liquid in the world. According to the reviews, for beginners who want to engage in trading, this currency pair offers the best opportunities to gain experience in trading.
What do you need to know about Volatility
Although the significant currency pairs are usually less volatile than other currency pairs, this is not always the case. There have been many situations where current events cause Volatility. For example, the vote to leave the European Union in 2016 caused many changes in the market, and all pairs that participated in the British pound became very unstable. Speculators also play a role in destabilizing the exchange rate.
Currency pairs – EUR / USD
This is the most active pair, although it is not the most volatile currency pair in 2021. It is well known that one of the main advantages of trading EUR / USD is the high level of liquidity of the dollar and the euro, which contributes to profitable transactions. There are many liquid financial instruments available for this currency pair, which allow traders to trade in both the spot market, futures, options and CFDs. The high transparency of the European Union and US economies also provides a high level of predictability for the currencies of these countries.
Currency pairs – USD / JPY
According to traders, the USD / JPY is one of the best-traded currencies in the Asian markets. It accounts for 17% of all transactions in the global foreign exchange market. This pair is associated with smaller spreads and is sensitive to political relations between the United States and the Far East. The Japanese yen consolidated last year against the weak dollar. This is surprising, given that a more robust US economy was predicted earlier this year. However, by the middle of the year, the dollar had regained its position.
The USD / JPY is one of the three most volatile currencies in the international market. Although it provides good opportunities for experienced traders, we recommend beginners to exercise caution due to the wide range of Volatility.