The London/New York overlap, occurring from 12:00 PM to 4:00 PM GMT, is the most volatile period in the forex market. This overlap combines the high liquidity of the London session with the strong market activity of the New York session, leading to increased trading volumes and significant price movements. Currency pairs involving the US dollar (USD), euro (EUR), and British pound (GBP) are particularly affected.

Key pairs experiencing increased volatility

EUR/USD

• The most traded currency pair in the world, EUR/USD sees heightened activity during this overlap due to the involvement of both European and US traders.
• Volatility is amplified by macroeconomic releases from the US and Europe, such as GDP, employment reports, or central bank announcements.

GBP/USD

• Known for its wide swings, GBP/USD is highly sensitive to both UK and US economic data.
• Traders monitor news releases such as Bank of England updates or US Federal Reserve decisions during this period.

USD/JPY

• While USD/JPY sees its peak activity during the Asian session, the overlap period introduces volatility driven by US data releases and risk sentiment shifts.
• US bond yields and equity markets often influence movements in this pair.

EUR/GBP

• This cross-pair experiences notable price movements as traders react to updates from both the eurozone and the UK.
• Brexit-related news or ECB and BoE policy announcements can significantly impact this pair.

USD/CAD

• Volatility in USD/CAD during the overlap is driven by US data and Canadian-specific releases, such as employment figures or oil price fluctuations.
• The pair often reacts to movements in crude oil, a key export for Canada.

AUD/USD

• Although AUD/USD is more active during the Asian session, the overlap can bring volatility due to US data and broader risk sentiment shifts.
• Changes in commodity prices, particularly metals, also influence this pair during the overlap.

EUR/JPY and GBP/JPY

• These cross-yen pairs exhibit heightened volatility during the overlap due to their connection with both European and US markets.
• Traders often focus on risk sentiment and central bank policy expectations affecting the yen.

USD/CHF

• USD/CHF experiences significant price action during this period as traders respond to US economic data and Swiss market developments.
• Safe-haven flows can also contribute to sharp movements.

EUR/CAD and GBP/CAD

• These pairs see increased activity as traders react to European and Canadian news, particularly oil price fluctuations and risk-on or risk-off sentiment.

Cross-pairs with commodity currencies (AUD, CAD, NZD)

• Pairs like GBP/AUD, EUR/AUD, and AUD/JPY experience volatility during the overlap due to global risk sentiment and US data impacting commodity prices.

Why these pairs experience increased volatility

• Liquidity influx: The London/New York overlap brings together the two largest forex markets, resulting in higher trading volumes and more significant price movements.
• Economic data releases: Key US economic reports, such as non-farm payrolls or GDP figures, are typically released during the overlap, causing sharp movements in USD pairs.
• Market positioning: Traders adjust their positions ahead of the US market close and in anticipation of the Asian session, leading to volatility spikes.
• Risk sentiment shifts: Global events, equity market performance, and geopolitical news often influence risk-on or risk-off flows during this period.

FAQs

Why is the London/New York overlap so volatile?
This overlap combines the high liquidity of the London session with the market-moving potential of US economic data releases, resulting in increased trading activity.

Which currency pairs are most affected during this overlap?
EUR/USD, GBP/USD, USD/JPY, USD/CAD, and EUR/GBP are among the most affected pairs due to their high liquidity and sensitivity to news.

How can traders benefit from this volatility?
Traders can use breakout and trend-following strategies to capitalise on sharp price movements during this period.

Are exotic pairs volatile during this overlap?
Exotic pairs can experience volatility, but their lower liquidity often leads to wider spreads and less predictable price movements compared to major pairs.

Do cross-pairs like EUR/JPY and GBP/JPY react to the overlap?
Yes, cross-yen pairs often experience significant volatility due to risk sentiment changes and updates from European and US markets.

What role do economic releases play in volatility?
Major economic releases, particularly from the US, can create sharp movements in USD-related pairs during the overlap.

Which commodities influence currency pairs during this time?
Oil and gold significantly impact commodity-linked pairs like USD/CAD and AUD/USD during the overlap.

How should traders prepare for trading during the overlap?
Monitor economic calendars, identify key technical levels, and use appropriate risk management strategies to handle heightened volatility.

Can volatility in the overlap lead to gaps?
Volatility during the overlap is typically continuous, but sharp price movements can resemble gap-like behaviour on smaller timeframes.

Is it risky to trade during the London/New York overlap?
While the overlap provides excellent opportunities for profits, the increased volatility also requires disciplined risk management to avoid significant losses.

Conclusion
The London/New York overlap is the most active period in the forex market, offering significant volatility and trading opportunities in major currency pairs like EUR/USD, GBP/USD, and USD/JPY. By understanding the drivers of volatility during this time and preparing with sound strategies and risk management, traders can effectively capitalise on the dynamic price movements.