Intraday volatility: Where the action is

The NZD/USD intraday analysis is based on hourly (60-minute bar) data from March 1 through April 30, 2007 (Figure 9). This analysis was based on a 24- hour trading session using Central Time (CT). On Fridays, the market closes at 15:00 (3:00 p.m. CT) and reopens at 16:00 (4:00 p.m.) on Sundays. Otherwise, the close is at 23:59:59 (11:59:59 p.m.) and reopens at 00:00 (midnight). Following the early-March decline the NZD/USD pair climbed until midto late April, after which it moved sideways to slightly lower.

Sellers have appeared each time price approached 0.7500. To determine if there is a time of day when the market is the most volatile, the high-low range for each 60-minute bar was calculated and sorted by hour. Next, both the average and the median ranges were calculated for each hour. (The median is included because it measures the center point in the hourly ranges and if the average differs significantly from the median, then outliers are skewing the data.) Figure 10 shows the average and median ranges of the 60-minute bars sorted by time.

Similar to most of the other curren- cy pairs analyzed in past issues of Currency Trader, the NZD/USD’s three peak-volatility hours are 7, 8, and 9 a.m. The average range for the 7 and 8 hours is 0.0020 points, while the 9 a.m. hour has a range of 0.0021 points. The difference between the average and the median range for the 7 a.m. hour was 0.0003 points, the difference between the average and the median for the 8 a.m. hour was 0.0001 points, and the difference between the two for the 9 a.m. hour was 0.0002 points — all very close, indicating these statistics are reliable.

Figure 11 shows the individual ranges for the 7, 8, and 9 hours. These three periods consisted of very narrow and very wide hourly ranges. The 7 a.m. hour had a range of 0.0050 points twice. Figure 12 shows distribution of the hourly ranges during the same three hours. The greatest number of ranges (18) fell in the 0.0020 category (0.0019 to 0.0020 points), and these hourly ranges were between 0.0011 and 0.0024 points 71 percent of the time. The hourly ranges during this period were greater than 0.0030 points just 14 times (11 percent).