Top 10.25.12

DATE: Oct. 25, 2012

1. USD/SGD – Looking for a Rebound in Manufacturing


FUNDAMENTALS
Industrial Production expected @ 2.8% (1AM ET / 5GMT)
Our View – Bullish SGD
Reason – Rebound Expected after decline in Q3
If Industrial Production is 3.0% or More = Sell USD/SGD
If Industrial Production is 1.0% or Less = Buy USD/SGD

Singapore Industrial Production is scheduled for release at 1AM ET / 5 GMT. We have strong reasons to believe that industrial production increased in September. Manufacturing activity in general was very weak in the third quarter, causing a contraction in GDP. Yet the Monetary Authority of Singapore left policy unchanged when they last met and this points to a possible rebound in industrial production. Also, recent data out of China suggests that the economy may be bottoming which also would be in line with an improvement in IP and finally, non-oil domestic exports rose 4.1% according to a recent report. Given these reasons, SG IP can be traded proactively (before the data is released) or reactively (after the data is out). – PROACTIVE or REACTIVE TRADE

TECHNICALS
Counter rally fails at 2260
Support still stays at 1.2200
Momentum turns negative

The counter trend rally in USDSGD ran out of steam at 1.2260 failing to take out a prior high and the current turn lower is supported by drop in RSI reading below 50. For now support rests at 1.2200
SENTIMENT
Risk mixed: Dow -.15% Eurostoxx .51% Nikkei -.67% Oil 85.65 -1.00 Gold 1,702 -6.00

Risk sentiment mixed to flat

2. GBP/USD – Q3 GDP will Show UK Rising Out of Recession

FUNDAMENTALS
UK GDP expected @ 0.6% (4:30AM ET / 8:30 GMT)
Our View – Bullish GBP
Reason – Retail Sales and Trade Increased Significantly in Q3
If UK GDP Exceeds 0.6% = Buy GBP/USD
If UK GDP Less than 0.2% = Sell GBP/USD

UK third quarter GDP numbers will be released at 4:30 AM ET / 8:30 GMT. We have strong reasons to believe that the U.K. economy expanded in the third quarter. After contracting for 3 straight quarters, the increase that we expect in GDP will bring the economy out of recession. The 2 most important components of GDP are retail sales and trade and both improved in the third quarter compared to the second quarter (albeit this was largely due to a big drop in spending April). However the forecast is high which may be difficult to beat. Nonetheless if U.K. GDP simply meets expectations of 0.6%, the GBP/USD should rise and if it beats, it is even better. However if GDP growth increases by less than 0.2%, the GBP/USD could fall as investors wonder whether this pace of growth is enough to convince the BoE that additional easing is no longer necessary. --PROACTIVE or REACTIVE TRADE

TECHNICALS
Sharp reversal off 1.5950
Possible double bottom
1.6150 next zone of resistance

Cable created a perfect bear trap today, plunging below the 1.5950 support only to stage a vicious up side rally that may now have formed a double bottom. Next zone of resistance at 1.6150

SENTIMENT
Risk mixed: Dow -.15% Eurostoxx .51% Nikkei -.67% Oil 85.65 -1.00 Gold 1,702 -6.00

Risk sentiment mixed to flat

3. USD/ZAR – PPI Could Surprise to the Upside

FUNDAMENTALS
PPI expected @ 3.2% (5:30AM ET / 9:30 GMT)
Our View – Slightly Bullish ZAR
Reason – Consumer Prices surprised to the upside
If PPI is -3.5% or Less = Buy USD/ZAR
If PPI is -1.0% or Better = Sell USD/ZAR

South Africa’s producer price report is scheduled for release at 5:30 AM ET / 9:30 GMT. We have strong reasons to believe that PPI could surprise to the upside because consumer prices were released today and increased more than expected. Typically PPI is release before CPI but in this case we have informational advantage. If PPI is -1.0% or better, the Rand should rally against the U.S. dollar, leading to losses in USD/ZAR. If PPI declines by 3.5% or more, the Rand should fall against the U.S. dollar, leading to gains in USD/ZAR. Given the sharp rise in CPI, we have enough reasons to believe that PPI could surprise to the upside as well, providing an opportunity to trade the data proactively. – PROACTIVE or REACTIVE TRADE

TECHNICALS
9.000 still key takeout to upside
Breakout holds for now
Momentum remains constructive

There is very little fresh to say about USD/JPY as it continues to hover near the 80.00 level. Consolidation remains constructive but there is major risk of reversal if the upside figure is not take out soon.

SENTIMENT
Risk mixed: Dow -.15% Eurostoxx .51% Nikkei -.67% Oil 85.65 -1.00 Gold 1,702 -6.00

Risk sentiment mixed to flat

4. USD/JPY – Will Jobless Claims Retreat?



FUNDAMENTALS
Durable Goods expected @ 7.5% & Jobless Claims expected at 370K (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Jobless Claims are 365K or Less = Buy USD/JPY
If Jobless Claims are 390K or Greater = Sell USD/JPY

Durable goods and jobless claims are scheduled for release at 8:30AM ET / 12:30 GMT. Durable goods orders are expected to rebound in September after falling sharply in August but jobless claims will be the main release because this week we finally get to see what is the “real” level of jobless claims. Two weeks ago, claims came in abnormally low because of reporting issues from one state and last week there was a huge spike as a result. This week claims returns back to normal and are expected to drop to 370k. If claims exceed 385k, it would be bad news for the dollar but if it is less than 350k or even 365k, the dollar should rise in relief. Durable goods and claims will be followed by pending home sales, which are also expected to rebound like existing and new home sales. – REACTIVE TRADE

TECHNICALS
Picture remains same as vol compresses
80.00 still key to upside
79.50 break opens a move back

There is very little fresh to say about USD/JPY as it continues to hover near the 80.00 level and volatility continues to compress. Consolidation remains constructive but there is major risk of reversal if the upside figure is not take out soon as the consolidation phase drags out.

SENTIMENT
Risk mixed: Dow -.15% Eurostoxx .51% Nikkei -.67% Oil 85.65 -1.00 Gold 1,702 -6.00

Risk sentiment mixed to flat

5. USD/MXN – Trade Deficit Expect to Balloon

FUNDAMENTALS
Trade Balance expected @ -1344M (9AM ET / 12GMT)
Our View – Neutral
Reason – Neutral
If Trade Deficit is -1400M or More = Buy USD/MXN
If Trade Deficit is -950M or Less = Sell USD/MXN

Mexico’s trade balance is scheduled for release at 9AM ET / 13 GMT. Economists are looking for a huge increase in the trade deficit because forward looking indicators such as the IMEF manufacturing PMI report point to moderation of economic activity in the months ahead. However manufacturing activity in the U.S. improved in September and industrial production in Mexico held steady which suggests that trade activity may not be so bad. Either way it’s a tough call because Mexico relies heavily on the U.S. economy. However if there is a large enough surprise, USD/MXN should react. -- REACTIVE TRADE

TECHNICALS
13.0000 Key magnet to upside
RSI remains constructive
12.9000 next key support

The peso looks primed to attack the key 13.000 level once again as RSI reading remain well above the 50 zone although momentum is starting to wane a bit. A turn here could set up double top and open a way for retest of support at 12.90 level
SENTIMENT
Risk mixed: Dow -.15% Eurostoxx .51% Nikkei -.67% Oil 85.65 -1.00 Gold 1,702 -6.00

Risk sentiment mixed to flat

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