Why such an extended move?

Here’s a comment from ‘Tucano’ in the … errr … comments:

EUR close to 1.31 now. Eamonn, how much of the move thru 1.30 can be attributed to thin liquidity?

A great comment.

My Twitter feed is going nuts with comments about how the move in EUR is ‘crazy’ etc.

OK, yeah, its a big move.

But, can I pose a few questions?

Q1. Where does the liquidity in FX come from? (Answer: From the Interbank market)

Q2. Have you looked at the clock?

Q2, part (2) Following on from the clock question, at this time of day, what are the active interbank FX markets? How big are they compared to London, for example?

Q3. Do you know how interbank players set prices? Do you know why they mark prices one way or another? They are not a charity.

-

If you are long EUR, GBP etc. – fantastic, well done.

If not, at least take this as a learning opportunity,

Author: Eamonn Sheridan

Eamonn Sheridan worked with Bankers Trust Australia for 13 years as a Spot foreign exchange dealer, trading across all major currencies and all time zones. He rose to a Vice President position, running spot operations during the busy European time, leaving the bank just prior to it being sold to concentrate on running his own business in the ‘real world’! The markets, however, had him hooked – he continued to trade equities, CFDs and then on to futures, giving him broad experience across financial markets. He is now active in FX and equity index futures as well as writing for ForexLive™. Eamonn is a graduate of The University of Melbourne in Australia and lives in New South Wales.

31 Comments

  1. The Australian and New Zealand Banks probably made a bundle today but will have giant hedging to do at the open in Tokyo and London and New York

  2. eur up 400 pips from the low…

  3. Ryan – yes

  4. It does make sense, probably the markets were also overbought of Dollars and a loooot of stops were triggered. But it’s still really, really, really crazy.

  5. Thanks Eamonn for the explanation. My question is – don’t the interbanks leave their bids/offers while they are closed?

  6. Hi, I’m am not ashamed to say that this move is now my greatest loss in Forex, by far and large. I was caught short EurUSD with profit on the day, but left some orders to sell some more on a way up. My GOD, this move might just be a market changer (?). I’m desperate right now…It will a be a long fight until the end of the month so save face.

  7. Question: “Why such an extended move?”

    Answer: Because the FED is crushing the dollar. People the FED IS IN THE MKT !!!

  8. Hi Sunny – your are correct, there are orders in the market, yes.
    BUT – today Bernanke was scheduled to speak and answer questions etc.
    And the market had been focused on this for about a week and a half. So there were a lot less in the market than usual.

  9. Hey EEamon

    What can you learn from this ?

  10. Hi Alec – sorry to hear that. There is always a danger of extended moves when Bernanke is speaking, compunded by the time of day in this case.

  11. Thank-you Desk trader. Yes, the effect of Bernanke being dovish today was dollar selling. Good point.

  12. I use stop limit orders but also emergency stop orders a few pips further out on every trade because I trade illiquid currencies like the nok, sek, sgd and mxn and they always do crazy stuff like we see today. Even in the big currencies pairs, probably a good idea to have emergency stop in addition to your stop limits so that the price can’t pass you by and leave you bleeding losses. I’ve been there. It hurts.

  13. Hi Nick
    I would suggest taking extra care whenever Bernanke is scheduled to speak. Not leaving resting orders in the market over times like this. This is not always possible for everyone in the market, some big traders need to leave resting orders to get size done. But for most individual traders I would suggest extra care leaving orders out there dangling at times like this.

  14. Spot on Ryan.
    Stop losses are my best friend. Essential.

  15. I don’t know the answer to this question: Do you know how interbank players set prices? Do you know why they mark prices one way or another? They are not a charity.

    Can you tell me more or give me a reference on where I can read up on this?

  16. Q2. Have you looked at the clock?
    LOL! Congratulations, you just got your post bookmarked. That’s the best comment I’ve seen for a while.
    I did just look at the clock, and realised I’ve been awake for a very long time, thanks to Mr Pain in the Arse Bernanke timing his speech exactly when I least want to be at my desk, and so long after the minutes release. Now that it’s business hours in Melbourne and Sydney, can ANZ or NAB or whoever just start hoovering this mess up so I can eat and go to bed, please? Then, all the regular Asian session traders can do something that resembles sleeping: attempting to trade in a normal Asian session.

  17. Even if I have been in forex for a while (almost two years) I don’t recall such a move. I mean, Euro up 400 pips against the USD in like 14 hours. It’s got to be a scary moment for the gold shorts. Basically the market today realized what I knew from the beginning. The taper will never happen, the FED is all in, they don’t have an exit strategy, they just can’t exit. What is the reason to buy the EUR? That is not the USD! What is the reason to buy the USD? That is not the EUR! The developed world is a basket case. I live in Dublin, now to go to sleep!

  18. Hi Jordy – I’ll dig up some info for you

  19. Thx Eamonn,

    i feel like the biggest idiot of the entire markets; like some big desk out there is rubbing their hands at fools like me. It was the first time i left limit orders on a FED day….lesson learned after these many years; just to show that too much confidence will get you done for. Good luck everyone.

  20. Thanks a lot!

  21. The goldman sachs investment that got stopped out of its Euro long yesterday must be feeling crap now too!

  22. Hi Alec- you’ve been at this a while now , you’ll bounce back in no time

  23. I bet all the Martingale systems exploded today.

  24. Extended move….we are just getting started.

    If you are short Long Bonds you are not liking life right now. Your whole short thesis is kinda out the window…..more gains for Notes and Bonds in the days ahead. The ghost of Bill Gross rides again!

  25. Great points Eamonn and Ryan.

    And today is the reason why you use stop and reversals in your trading arsenal. Absolute brutal day for USD bulls.

    Looking at 83 for the next big support area

    USD Index Daily
    https://www.tradingview.com/x/IzoQg20M/

  26. Alec, you are not alone, I would imagine most of us at this site (and especially the ones now boasting about winners) had one of their worst if not worst day trading. Myself included. I was fortunate enough to get out of my AUD short this morning at a 43$ loss (after waking up to a much more disastrous one). Silly me decided to buy USD/JPY around 100.25. It did not take much time for me to be licking my wounds from that. Definitely time to take a break for a while as the dust settles and to get head back on straight. God bless the Bernanke….NOT!

  27. the FED is going sending us all round in circles … fed meetings indicated slowing down of QE, then deputies went back on that & now benanke has gone right back to where we started saying he thinks we just need to go on with status quo … its like a bad LSD trip …

    http://www.youtube.com/watch?v=WEhS9Y9HYjU

  28. While the magnitude of the moves speaks for itself, it strikes me that the market has massively overreacted to the actual content of what Bernanke said.

    As for interest rates, we already knew that his view was they don’t go up until unemployment is 6.5% or below, if then, and that they probably stay where they are or lower until late 2014/early 2015. So what’s new there?

    He has repeatedly emphasized that the current low levels of rates is an accommodative monetary policy with or without the bond buying. So when he says we’re going to remain accommodative for the foreseeable future, it doesn’t necessarily mean “no taper”.

    And he didn’t directly speak to tapering versus not tapering.

    I think we’ll see some clarifications in the near future. Maybe first via Hilsenrath…

  29. I was being a dick for a pip again and like Alec got smashed but with tiny size.

    I’m telling all of you watch out dollar bulls and I think 100 pips against dollar is enough and reverse. For what reason???

    Keep an eye on DXY and don’t be a dick for a pip.

    https://www.tradingview.com/v/1SjbJlwL/

  30. Thank you;
    i would like to have been the only loser, hope all recover swiftly….
    Serves me right: the market has a punch bigger than my theory can grasp.
    good luck all.

  31. Now time for the best part….watching the retrace after taking your lumps :(

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