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Why does GBPUSD enjoy the biggest/easiest price moves?

  • Post #1
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  • First Post: Edited 9:09am Jun 5, 2007 8:50am | Edited 9:09am
Hi

the following are not all questions as such, more labelled points for discussion.

1. Of maybe the 10 main currency pairs, GBPUSD enjoys the biggest/easiest price moves, and has the biggest Average Daily Range. Yet cable price movements have decreased over the last year or so.

2. Why does GBPUSD enjoy the biggest/easiest price moves?

3. If this is because GBPUSD "volume" is thinner than eg. EURUSD, then it is surprising that other currency pairs in the top ten list, such as EUR/JPY do not enjoy similar moves, as you'd expect "volume"/participation in these pairs to be minimal.

4. USD/CHF is perhaps the next most volatile pair, with i think the 2nd biggest ADR, but it rarely trends in one direction for the whole (UK session) day, without reversing in the afternoon.

5. If you look at the minor pairs, the bigger the moves, the bigger spread you pay to trade the pair.
Therefore, It is slightly surprising that GBPUSD has the biggest moves, but among the narrowest spreads.
EG. on this basis you'd perhaps expect GBPUSD to have a wider spread than the likes of USD/CHF & EUR/JPY.

6. GBP/HKD for eaxmple - its price action patterns on a chart and the actual size of pip movements more or less are a mirror image of GBP/USD, but the spread is 7 pips with CMC compared with 3 pips for GBPUSD.
Therefore there are pairs that have similar size actual pip movements to GBPUSD but with much wider spreads.
For that reason it seems that of the top ten+ pairs GBPUSD is the best value pair to trade by far, if your interest is in capturing the trend.

Thanks.
  • Post #2
  • Quote
  • Edited 9:48am Jun 5, 2007 9:33am | Edited 9:48am
For me, its quite surprising that of the hundreds of currency pairs, and of the 10-20 main pairs, there is only cable that enjoys frequent/easy/big trends/price moves, with a similar small spreads ike cable.

Sure, you can find pairs with similar size pip price moves/trends to cable but the spread is bigger.

You can find pairs with pip price movements/trends much bigger than cable, but it is all relative to a much bigger spread.

Ideally, I wish there was at least 3 pairs that were very similar to cable(gbpusd) in terms of these characteristics. Sadly, i don't know of any...........
So why have GBPUSD moves/trends/ADR decreased in size over the last year or two?

Is it due to an increased number of participants causing congestion - meaning that GBPUSD is becoming more like EURUSD?

If so, why then do none of the presumably less popular/less heavily traded pairs than GBPUSD, such as USD/CHF, EUR/JPY, NZD/USD, AUD/JPY etc. not enjoy similarly big price moves/trends to GBPUSD?

Many thanks.
Here's some thougths from Currency Trader Mag



"GBP/USD (“Sterling” or “Cable”)

Trading the pound is not for the faint of heart. The British
currency is traditionally among the most volatile and erratic
currencies because of its lower liquidity available and
larger point value. Prior to the introduction of the Euro in
1999, only the “Commonwealth” currencies (GBP, AUD,
and NZD) had values denominated in U.S. dollars.
Historically, this meant that movements in the pound were
among the most risky and expensive, which restrained market
interest and liquidity.
For example, option volatilities in the pound tend to run
about 10 to 20 percent higher than comparable EUR/USD or
USD/JPY volatilities. This is most evident in the pound’s
wider spot spreads, as well as its tendency to move in multiple-
point jumps — unlike the EUR/USD, which tends to
move pip by pip. This suggests traders are better off paying
offers or hitting bids to enter the market than waiting for the
market to “back and fill.”
Because of the lower liquidity and higher volatility, the
pound tends to act as a leader in major U.S. dollar moves,
frequently reaching or breaching coincidental technical levels
before EUR/USD does. As a result, even traders who are
not actively trading the pound still need to monitor its
behavior and technical levels for clues about what the
EUR/USD rate might do.
For instance, if negative U.S. news sends the dollar lower
and the pound and Euro higher, the pound is likely to test
identical resistance levels (say, recent daily highs) before the
Euro, because the depth of the Euro market will slow its
advance.
If the pound breaches those recent highs and follows
through, it is a strong signal the Euro will also breach its
recent highs and experience follow-through buying. By the
same token, if the pound stalls at those recent highs, it is
also a likely signal the Euro will fail in its up move.
In a highly directional market, the pound will tend to display
extreme one-way behavior, rarely pulling back more
than a few pips, while EUR/USD will offer greater corrective
opportunities to enter. This suggests traders who are caught
on the wrong side of a move need to react more aggressively
and not hold out hope for a pullback, while those who are
with the move can stay in longer with a trailing stop.
When it comes to technical levels in relatively calm markets,
the pound frequently exhibits false breaks, as stoploss
orders placed near technical levels make for tempting
targets for market players. It is not uncommon for the
pound to trade 15 to 20 points through a technical level,
and then reverse after associated stop-buying has run its
course. This suggests traders need to anticipate potential
false breaks and adjust their position size and order level
accordingly.
Following the London close, liquidity in the pound falls
precipitously, creating the risk for unexpected, positionrelated

moves in North American afternoon trading."

It certainly is a good idea to learn the characteristics of your favorite pairs.
Nice post KudzuFX :-)
GBP/CAD is a pair that is similar to GBPUSD in terms of size of moves, but the typical 10 pip spread is an off-putting factor....the same can be said for GBP/CHF which also had a typical 10-pip spread.
Perhaps the best thing to do would be to identify a handful of currency pairs that represent the best value in terms of size of spread v's size of moves, ADR etc.

Of the top 10+ or so pairs, I think that the point i am trying to make is that GBPUSD seems to be firmly in the number one position, with no competition anywhere close behind....
  • Post #8
  • Quote
  • Last Post: Jun 5, 2007 6:46pm Jun 5, 2007 6:46pm
Quoting jimbil
Perhaps the best thing to do would be to identify a handful of currency pairs that represent the best value in terms of size of spread v's size of moves, ADR etc.

Of the top 10+ or so pairs, I think that the point i am trying to make is that GBPUSD seems to be firmly in the number one position, with no competition anywhere close behind....
Ooooh...
New Stat I see do I?

AD$ - Spread
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