EUR/AUD: How to butcher a big order in the FX market

One week ago EUR/AUD was trading quietly on the 1.33 handle. Now its touching 1.42. What happened will surely be taught in years to come as the exact way not to execute a large order in the FX market. Instead of calm we had panic, instead of finesse we’ve seen heavy-handedness, and instead of subtlety we’ve seen the dambusters! One-way selling of AUD/USD during the Asian session and then buying of EUR/USD during the European session. Whatever happened to trading an order; selling some then buying part back to keep the market guessing? The stampede caused by the heavy selling has been a huge disservice to whoever the poor customer is.

Unfortunately the art of FX trading in banks is becoming a lost art. There are no traders, no risk takers, no common-sense chief dealers; all have been replaced by execution platforms and algorithms.

It’s a myth that there is deep liquidity in the FX market, in fact despite it’s growing size, the dearth of market makers and proprietary risk takers on a daily basis means that its impossible to clear any decent amount of business in a timely fashion. One big hedge fund recently told me that if he needs to clear EUR300 at the height of a normal European/US session, he needs to do so in twos and threes. No one will take on any of his risk.

Regulators should be careful what they wish for.

  1. Hello Sean, so what do you think happens with EurAud going forward? Any idea if the big buy order is finished? If so will it drop as quickly as it went up?

  2. This is just one giant carnage of AUD. When i wrote about the inverted H&S on EURAUD back in late March, the target was around 1.41 , but this rise is just ridiculous. I see the price is coming up on strong weekly resistance at 1.4350, perhaps a stop ? AUDNZD still looks good on the upside, as soon as someone will take their feet of the pedal on aussie. Something tells me that the door for exiting aussie shorts will be very small. From latest COT report commercials are still loading up on AUD , difficult to stand in the way of such relentless selling.

  3. So this would imply that once this large EURAUD buying is finished + some time for the market to thrash about, we should see a big recovery in AUDUSD and a drop in EURUSD?
    Your comments regarding liquidity are perceptive, its always enlightening reading your posts!

  4. Re-look at the chart … the 1.41 target was the fake … its really 1.47 when neck broke at 1.3262 give or take in May. That pattern started shaping in Dec 2012 but faked a neck at 1.2780

    Wont be a straight line …. but I see no reason why it will not get there

  5. I wouldn’t discount anything in these markets, in either direction. What we can definitely agree on is that market behaviours and reactions have changed as the market structure has changed. It seems there will be lots of long slow entries into trades and mad panic exits

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