Tokyo–London overlap — a handover, not the peak of the day

For weeks one part-time trader I know swore that the morning hours were dead time, because he only ever watched the market in the evening. Then one day he opened his platform at eight in the morning and saw something odd: EUR/USD, which had shuffled inside a thirty-pip range all night, broke fifty pips in a quarter of an hour. It was not a fluke. He had simply walked into the moment when the sleepy Asian session hands the wheel to Europe.

What actually happens in the market each morning

A lot of folklore has grown up around the Tokyo and London overlap. The most common version goes like this: if two sessions are open at once, it must be the best time of the day. That is a misunderstanding. Yes, for a brief moment Tokyo and London run in parallel, but this is not the liquidity peak — it is a handover. The thin Asian session is fading out, and deep European desks are taking its place.

The scale of the imbalance explains why this is not a meeting of equals. According to the Bank for International Settlements survey of 2022, around 38 percent of global FX turnover passes through desks in the United Kingdom, against a little over 4 percent through Japan. In other words, London is several times the size of Tokyo here. When that capital comes online in the morning, it does not so much add to Tokyo as simply take the market over.

Why the overlap is so short

The reason is mundane — time zones. Tokyo is roughly eight hours ahead of Central Europe, so Japanese desks wrap up their day at about the time European desks are sitting down. In practice the Asian session closes around 09:00 Central European Time, while London opens around 08:00 to 09:00. The shared window is barely an hour, broadly between 08:00 and 09:00 CET. Daylight saving complicates it further: the United Kingdom and the euro area change their clocks on slightly different dates than parts of the rest of the world, so for a few weeks each year the whole window drifts by an hour.

For comparison — and this comparison is the point — the afternoon overlap between London and New York lasts about three hours, roughly between 14:00 and 17:00 CET. That is when both sides of the Atlantic trade at once, spreads are at their tightest, and moves are at their most decisive. So if you are looking for the genuine peak of the day, it is there, in the afternoon, not in the morning. The brief Tokyo and London overlap is a minor episode by comparison. There is more on the afternoon window in the piece on the best hours to trade forex.

The London open volatility injection — what is worth feeling

If it is not liquidity, then what is it about the morning that is worth knowing? The answer is the injection of volatility that arrives with the European open. That phenomenon, rather than the overlap itself, is the real story here.

Through the European night the market usually drifts lazily. Trading is dominated by Asia while the largest players in Europe and the United States are asleep. On EUR/USD the overnight range is typically some thirty or forty pips of narrow, sleepy consolidation. When desks in Frankfurt and London come online in the morning, things change within minutes. A wave of orders that had been waiting for liquidity hits the market: corporate flow being executed, funds positioning, and reactions to the early European macro data. The same overnight range that had kept price boxed in for hours can then give way in one direction.

„The London session is the most active trading period, and the open of European desks regularly produces a clear burst of volatility in the major pairs." — Kathy Lien, Day Trading and Swing Trading the Currency Market, Wiley, 2016.

This is where the popularity of watching the overnight range comes from. The idea is simple: through the many Asian hours the market marks out a tight corridor, and the London open often breaks price out of it. Japanese desks closing their books, just as they finish the day, can add a little extra movement. It is not a magic signal — it can just as easily be a false break — but the bare fact that volatility steps up sharply in the morning is well documented in the market.

Which pairs react to the morning injection

The pairs that wake up most strongly in the morning are the ones with the euro or the pound on one side, because their home market is the one coming into play. EUR/USD and GBP/USD, which stood still through the night, start to breathe freely once London opens. It is on these pairs that the morning volatility injection shows up most clearly.

The yen pairs are a separate case. EUR/JPY and GBP/JPY hold one currency whose home session is just closing and another whose session is just starting, so they can be lively in this window. To be honest, though, this does not make them the "best overlap pair" in any magical sense — they simply react both to the leftovers of Asian activity and to the fresh European energy. If you are just starting out, the natural choices are EUR/USD and GBP/USD. We cover the individual sessions separately: see the pieces on the Tokyo session and the London session.

Your next step

1. Look at the morning on the chart. Open EUR/USD on a fifteen-minute timeframe and compare the overnight Asian range with the first hour after the London open, from roughly 08:00 CET. Count, even roughly, how far price moved in each window. You will see for yourself that it is not the overlap that makes the difference, but the arrival of European desks.
2. Do not confuse this window with the afternoon one. Fix this in your head once and for all: the real liquidity peak is the London and New York overlap between 14:00 and 17:00 CET, not the morning brush with Tokyo. If you care about the tightest spreads on EUR/USD, plan your trading for the afternoon.
3. Mark the overnight range, but carefully. Before 08:00 CET, note the high and the low of the Asian hours on your chart. Watch how often the London open breaks price out of it, but treat the break as a hypothesis to confirm, not a sure thing — false breaks are common too.
4. Check spreads at different times. Note the EUR/USD spread in the morning at the open, in the afternoon during the New York overlap, and late in the evening. You will see in black and white that the morning window can be volatile, but it is the afternoon that gives the cheapest entry into the market.