I want to give more insight with GBP/USD analysis through following topics:
- GBP/USD Name Analysis
- GBP/USD Analysis Popularity
- How to Trade GBP/USD
- Trading Session Pip Range
- What is GBP/USD Daily Range
- GBP/USD Weekly Range
- Monthly Range and Pip Range History
- What Impacts GBP/USD Volatility
- Connection Between Volatility and News
- GBP/USD Analysis – What to Take From Here
- 1 GBP/USD Name Analysis
- 2 GBP/USD Analysis Popularity
- 3 How to Trade GBP/USD
- 4 GBP/USD Analysis – Trading Session Pip Range
- 5 GBP/USD Analysis – Daily Range
- 6 GBP/USD Analysis – Weekly Range
- 7 GBP/USD Analysis – Monthly Range and Pip Range History
- 8 What Impacts GBP/USD Volatility
- 9 Connection Between Volatility and News
- 10 GBP/USD Analysis – What to Take From Here
GBP/USD Name Analysis
Nick name for this pair is know as “Cable” based on the cable between Europe and U.S. Cable has been laid under the Atlantic Ocean in 19th century for telegraph communications.
Pair is called “Cable” because contains two currencies, GB pound and U.S. dollar, which are main currencies of those two countries. Between two countries communications were transmitted over this cable and since then nickname has been held.
Later on it is been replaced by optical fiber cable and many other cables along this one have been laid for communication.
GBP/USD Analysis Popularity
GBP/USD Forex trading pair is major trading pair and one of the most popular trading pairs in the Forex market. Because of his narrow spread volume and great volatility GBP/USD is well known and traded pair.
Here is few characteristics about GBP/USD that will tell you why it is so popular:
- Volatility – even though it have narrow spread it is wider compared to other major pairs. Reason for this is because of unpredictability and volatility
- Safe pair – it is relatively safe to trade meaning currency is highly traded among traders and rarely it happens that pair lose its ground and price rise or drop to heavily. There is a lot of data available for you to read about pairs that can help you in trading
- Quick movements – GBP/USD trading pair can move very quickly and it have large daily pip range which I will show you later in this post.
How to Trade GBP/USD
GBP/USD is one of major trading pairs on the Forex market. Major pairs are one that contains USD as a base or quote currency and they have the highest daily trading volume.
GBP/USD pair is very volatile and to trade it, it’s not so easy. To be good in trading this pair I suggest you to read a lot about this pair and train your eye to understand how it behaves so you can start predicting future movements.
Because of high volatility you can start day trading on this pair. Traders loves to enter fast and exit fast with pip in their pocket. Even though it is great to have trade quickly open and close it is mandatory, on this pair, that you have wider stop loss. It is because pair have wide pip range and you need to allow pair to move up and down without hitting your stop loss.
One of great trading strategies on this pair is breakout strategy I have explained in previous post. Plan your trading strategy in time when European and U.S. market is open because more traders are active and more opportunity emerges.
How to Trade GBP/USD – Volatility
Due to high volatility GBP/USD trading pair moves very quickly. Volatility on this pair goes around 100 pips per day and you can extract a lot of pips if you have good trading strategy.
Important to remember is that you need to have wide stop loss to allow trading pair volatility to breath so you do not get stopped very quickly.
One of examples of trading this pair is to have good Risk:Reward ratio. You can take 1:3 or 1:4 where you risk 25 pips for 100 pip reward. This way you allow trading pair to give you good reward but you plan to have small risk. To do this, plan to enter trade next to support/resistance and watch for price pattern to confirm you breakout or retest.
Volatility is very influenced to news related to GBP so pay attention to those days where you could earn a lot if you catch correct direction or you could lose a lot of money if you are on the wrong side of the movement.
GBP/USD Analysis – Trading Session Pip Range
To show you which trading session is the best for GBP/USD you should take a look into image below. Image shows a list of trading pairs I have researched through period of one year.
Lets dive into GBP/USD trading pair analysis to see how pair behaves in different hour, day and month. I want to emphasize that time of candle price is taken out from platform which is on GMT+1.
First chart shows how pair is doing on trading sessions compared to others trading pairs. I have ordered pairs on the chart to easily see which pair has lowest and which have highest volatility.
GBP/USD have fourth highest volatility in all trading sessions which imply that pair is the highly volatile among all other pairs. GBP/USD analysis shows us that traders love to trade it and thus creates large pip range during London session.
Read more: Forex Market Trading Session
Which Trading Session Should You Trade
If you are not bond to time frame during each day like if you live in Australia and it does not make a problem for you to trade on London or New York then you can extract the best volatility from the market.
On Sydney and Tokyo session you will have some volatility which can be enough but to have a good pip range you should wait Tokyo session to start because Sydney trading session does not give more than 30 pips. Moving from Asian session to European, London, session we see rise in pair volatility.
London session give us great volatility which is more than double than Sydney session. Because GBP is European currency, London currency, many traders love to trade this currency and consequently pair have higher volatility.
During London session we have overlap with New York session which gives us more volatility because U.S. traders jumps on the market. During overlap, news on U.S. market are published which impacts all currencies in the world.
You will see how overlap time have impact on the pair volatility during day on the chart further in this post.
From this chart you should take information where GBP/USD analysis shows you that:
- pair have highest volatility on London trading session
- during overlap with New York session have increased volatility
- starting from Monday volatility increases
- volatility peak is in the middle of the week, on Thursday
- Volatility slightly decline on Friday
GBP/USD Analysis – Daily Range
If you take a look how overlap looks like then you understand why pip range is higher on these time. Trading session chart shows that time between 2 trading session, London and New York, happens between 14:00-18:00h(GMT+1).
How does the time overlap looks on the daily pip range, measured in hours during a day is shown on the next chart. Immediately you can see that time between 14:00-18:00 have rise in pip range which confirms above said.
Time overlap between London and New York trading session, news publishing, large amount of traders on the market have a result as increased pip volatility in that time.
It is not only London and New York trading session overlap that makes a difference in pip volatility. You can see that trading session overlap between London and Tokyo have change on the pair volatility.
GBP/USD Analysis – London Session
London session is known as the largest one and while GBP is Europe currency traders like to trade that pair. We see increase in pip range from 09:00h up to 11:00/12:00h.
Around noon we see drop in pip range on London session. Mostly this is due to lunch brake in Europe, positions are set and traders relax in next 2 hours waiting for New York session.
GBP/USD Analysis – New York Trading Session
Around 14:00h we see rise on the pip range and reason for this is that U.S. traders together with Europe traders are active on the market. GBP/USD volatility increases due to large amount of trades.
Traders form their positions and mostly around that time news from U.S. are published. News have high impact on this pair because USD currency is widely connected to all other currencies. So, when USD currency moves all other currencies also move.
Going to the end of the day you see that pip range starts to decline, especially when London trading session finishes(17:00h). Large amount of traders close their position, GBP/USD volatility declines and pair is traded less.
By the end of the day pip range is at same level as it was on the start of the day. Sydney and Tokyo trading session takes over and another day comes.
What you should take from these two charts for your trading is this:
- During a day pair have highest volatility on trading session overlap
- One trading session overlap have increase in pair volatility, London-New York session
- Best time to trade is on London-New York trading session overlap where pip volatility is at highest rate
- You should close your positions, if you are a day trader, until London session closes to avoid later “slower” movements
GBP/USD Analysis – Weekly Range
On the next chart I will show you how pair is doing on the weekly basis but not on the trading sessions. This information you can incorporate into your trading strategy when you plan to trade this pair.
Similar to chart “GBP/USD analysis – trading session pip range” this chart shows similar data on pair volatility. Starting from Monday pip volatility increases. This increase we can connect with waking of the market after weekend.
From Monday to Wednesday traders makes they trading strategy and enters into trades. Trends on the pair movement start to form. Traders looks what is pair trend, make trading plan when to enter and exit and which news will have impact on trading pair.
These key characteristics are done over weekend before or on start of the week. When all is done traders enters into positions and they day trade or wait several days to exit their positions.
When pair hits Thursday mostly traders start to plan to exit trades. Pair volatility decline to the end of the week. On Friday there is still volatility, higher comparing to Monday, but lower than Wednesday or Thursday.
On Friday traders tend to close their positions due to weekend on which sometimes can be published news which have high impact on the pair. So, to avoid that kind of possible problem if news are against trader they close their position on Friday.
Friday – Day for Profit Lock
During Friday you could see that price of the pair reverse against weekly trend. Reason for this is also in closing positions of the traders who takes their profit from the market.
What you should take for yourself from this chart is following:
- On Monday prepare yourself for trend forming
- Until Wednesday do not trade or scalp if you are scalper or day trader. Wait until highest volatility hits pair where you can extract most out of this trading pair
- If you are weekly or long term trader wait until Wednesday until trend is formed or confirmed
- On Friday get out from trading pair if you are uncertain will there be any news over the weekend which could impact trading pair volatility
GBP/USD Analysis – Monthly Range and Pip Range History
In the next part of the blog post I will show you 12, twelve, charts which shows GBP/USD analysis over few decades in order to give you the best pair volatility overview.
January is one of 2 months that have monthly average pip range above 700 pips. Something useful you can see on the chart that pip volatility from 2009 have declined with low slope. Average pip volatility is shown as average line and it is declining looking from start of measuring data, 1997.
8th January 2009 – BoE reduced the bank rate by 50 basis points to 1.5%
February is one of few month that have the lowest volatility.
Average pip range line is rising looking from start of measuring data. Line shows us small slope where pip range is not changed so much looking to past data. This information gives us conclusion that pip range on February does not change a lot.
5th February 2009 – BoE again cuts the bank rate, by another 50 basis points to 1.5%
Average pip range line is also declining and slope is low going down looking from start of measuring data.
5th March 2009 – BoE creates a record low by cutting the bank rate by 50 basis points down to 0.5%, and then announces quantitive easing (QE)
April is a month with high slope rising on average pip range looking from start of measuring data. It is month with small average pip range, under 600 pips. This information tells that month does not have so much volatility and there is no big events that had impact on pip range change.
May as one of the months with average slope going down in pip range. Average line shows us that trading activity on the pair slowed down in past years. What will happen in the future it is left for those who would like to guess trend direction.
One characteristic point on the chart that sticks out is year 2016. This month is historical because on the 23.06.2016. U.K. had referendum on leaving European union.
Referendum had so much impact that average pip range on that month was over 2700 pips. That same day pip range was around 2700 which was huge movement on the Forex market.
Referendum had so much impact that average pip range on that month was almost 2000 pips.
July as most of the others months have decline in average pip range looking from past to today. Month does not have large price movement but 2016 had increase in pip range volatility due to Brexit referendum from June 2016.
Major financial crisis in 2007-2008 had large impact on price movement on every currency so this pair had also some change in pip range.
8th October 2008 – BoE cuts its bank rate by 50 basis points to 4.5%
This event we see as pip range increase in 2007 and decline until 2009. No other events had so much impact on the GBP/USD price as major financial crisis.
September is a month with no big movements or events that had so much impact on the price to make large spikes.
Average pip range is declining with low slope looking from start of measuring data.
What sticks out on the chart is 2008 year. On 22.10.2008. U.K. said they are in recession. News had so much impact on the price that monthly pip range was above 2000 pips.
Average pip range line is almost straight line in this month.
Average pip range on this month is declining with slow pace. What sticks out is year 2008 where pip range was high due to October news that U.K. is in recession. This news had impact on the next month but with lower strength.
6th November 2008 – BoE cuts the bank rate by an additional 150 basis points, down to 3.0%.
Other months did not had any big event that had such impact to move price of the pair and to make high pip range.
December is a month with high decline in average pip range compared to other months during a year.
4th December 2008 – BoE cuts the bank rate by 100 basis points to 2.0%
Like on any other month year 2008 was a year after which average pip range did not pass above 600 pips.
GBP/USD Analysis – Monthly Conclusion
You see spike on 2009 or 2016 year. Those spikes have occurred on the big events which had large impact on the pair GBP/USD volatility.
In year 2007-2009 major financial crisis hit whole world and GBP/USD was not spared of large movements.
2016 for GBP/USD pair were influenced by GBP referendum where U.K. nation has decided to leave European Union. You can read here more information. This referendum had so much impact on the currency that several years after that, question about Brexit is still open and uncertain how will end.
Small volatility leaves smaller opportunity for traders because it is much easier to grab some pips in over 100 daily pip range instead trading on 70 daily pip range. So, in these times you can expect that you will have lower average pip income.
This directly impact on the trading results because smaller pip movement can be hard to trade when spread or commission is to large. Sometimes opening a trade is not worth of the costs you will pay just to enter into the trade.
Smaller volatility can trick you in a way you think there is a trend but momentum slows down and you get stuck in a trade. You have less trades available or signals from your trading strategy and your strategy begins to give you less profitable trades.
What we see generally is that average pip range is declining from 2009 and we do not have such volatility as before. This gives us less opportunities to catch higher number of pips but still pair has large volatility that allows us to trade it and to earn money.
What Impacts GBP/USD Volatility
What influence these two currencies is primary their economy. One of the highest indicator that have large impact on the currency is interest rate in each country.
Mostly when interest rates are increasing price of the currency is increasing. This is called International Fisher effect.When interest rate is higher in UK it means that GBP will rise comparing to USD. When USD interest rates is higher than UK, USD will rise comparing to GBP.
Higher interest rates means currency
will attract more investors in that country where they can earn more money and
currency becomes more desirable.
Central banks – Institutions that affect the pair are the central banks, FED and BoE(Bank of England). They regulate interest rates which as a result have currency movement.
Connection Between Volatility and News
The most influential factors/news are:
- Economic growth – When the US economy is stronger than the UK’s, the dollar rises against the GBP. When the UK economy is stronger than US, the dollar normally weakens compared to the pound
- Political events – As seen with the Brexit decision detailed above, political decisions can trigger movement in the GBP/USD currency pairing. Political elections, for example, can have a visible impact
- Monetary policy – As seen in the early history of this major currency pair, the actions of the FED and BoE can seriously influence rates
PPI, CPI, PMI and GDP
- PPI as Producer’s Price Index
- shows trends within sale markets, manufacturing industries and commodities markets
- CPI as Consumer Price Index
- Consumer Price Index measures inflation that is most important indicator of the economic health of that country
- PMI as Purchasing Managers Index
- shows us are purchasing managers optimistic or pessimistic about the economy
- GDP Gross Domestic Product
- tells us how much the economy is strong, hod does it advance and is it healthy or not
These indicators have impact on the price of any currency and they are ones which you should watch. Price index is telling how the price of consumer goods and manufacturing material is doing. These prices have impact on inflation and consequently on interest rates.
GDP is overall information how country is doing and this information will have large impact on the price of currency.
I will not go more into details about these indicators but you can check for more information on the links I have gave.
GBP/USD Analysis – What to Take From Here
As I have give a lot of information in GBP/USD analysis there is useful information you can use in your trading.
- Pair have large volatility and high movements
- Use overlap in trading sessions, London and New York, to extract as much pips is possible because then you will have the highest movement
- During a week choose to trade on middle of the week, Wednesday and Thursday because then you have best volatility and chance to grab pips from the market
- Watch for Friday – lock the profits you have to avoid impact from weekend news if there is any
- Any month in a year is good to trade. There is no big difference between them
- Watch out on published news and indicators that have large impact on the currency
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