Dear Sir, firstly congratulations on the mastery course. It goes a lot of the way to answering many questions that have been bugging me over the years and represents an immense undertaking on your part for which i am very greatful.
I just wanted to ask one question if i may, regarding aud/usd. Having started recording the news for the aud, usd and cny a couple of weeks ago, i can understand why the non farm payroll announcement would cause the aud/usd to fall. There was a lot of negativity about the aud and it seemed strong nfp numbers would aid the cause for a taper which in turn would have been negative for the aud. So could you please convey your thoughts as to why it bounced back so so quickly and strongly. Was it a case of the aud just being sold out or after a final spike lower into stops it just bounced back on profit taking but the global macro direction is still short. Surely these nfp figures couldn\’t have caused all the global macro short players to suddenly realise they were in the wrong direction and had to liquidate causing massive long orderflow in the aud/usd.
Also one other thing was such a move down and sharp rebound foreseeable using the orderflow principles in your course?
Your thoughts would be greatly appreciated.
There are a few different reasons why the AUD/USD bounced back. Since it is a currency pair, it was either due to pure AUD component (pure AUD str), pure USD component (pure USD weakness), or some combination of both (some AUD stra and some USD weak).
You can further determine what component it was, by looking at what happened with some of the other currency pairs.
EUR/USD bounced back, GBP/USD bounced back, NZD/USD bounced back, AUD/USD bounced back. They all bounced back from the NFP spike down. This has been the case with the strong US data lately. The USD cannot sustain the rallied for a variety of reasons and whatever intraday gains it makes, it has tended to lose back, for at least the past week. Part of it can be because the market is unsure if it is strong enough data to support a Dec/Jan Fed taper or not. They market is still unsure. And they are not sure how large the Fed taper will be. Will it be 10bln? 15 bln? 20bln? So the market is reluctant to bid up the USD too much so far.
What that means is that the macro model for the EUR/USD, GBP/USD, etc, is to: DO NOT SHORT BOTTOM TICK. I made sure not to short the EUR/USD at the lows of the day, because it risked macro exhaustion and liked to bounce back. Similar thing with AUD/USD. Do not short the lows, and do not short the downside tripping of stops, because it risks macro exhaustion and you may not get a runner to the downside. That is just the current macro model. You can notice it by looking at a chart of AUD/USD over the past 10 days or so. If you shorted a fresh low, it wasn’t a great trade. The last time it worked was on Nov 21, but the AUD weakness was just starting then, and it had fresh macro order flow from AUD weakness component.
Another reason is that there has already been a lot of AUD weakness lately, and there was some justification with RBA Stevens verbal intervention as well as some weaker AUD GDP, etc. But a lot of the AUD weakness is already priced in and the market may be looking for more evidence of AUD weakness and potential future rate cuts in order to sell the AUD further. That is all. Someone may have a bearish macro view for the AUD, but it also depends on their timing. If you short AUD/USD at the lows, or buy EUR/AUD or GBP/AUD after it trips topside stops, it may not be best reward risk ratio trade. A trader has to get the right timing macro model correct, as well as the correct overall macro view news/sent/fund/macro order flow bias.
Global macro bias for AUD/USD may be bearish, but it may only be very gradual. It may not be an explosive move where it drops 100 pips every day for a week. It may be very gradual, say for example drop 70 pips, rally 50 pips, drop 70 pips, rally 40 pips, etc. So shorting the lows of the day or downside stops, is not the best way. Shorting a rally or tripping of some topside stops would have been better in AUD/USD.