Top 5 01.02.2014

TOP 5 HOT IDEAS

DATE: Thursday Jan 2, 2013

Guidelines for Top 5 Trading:
Proactive –
Enter trade 20 minutes before data, 25 pip stop, 25 pip first target
Reactive – Enter trade 5 minutes after data release, 20 pip stop, 15 pip target

1. AUD/USD – PMI Manufacturing



FUNDAMENTALS
PMI Manufacturing expected @ (5:30 PM ET / 22:30 GMT)
Our View – Neutral
Reason – Neutral
If PMI Manufacturing exceeds 50 = Buy AUD/USD
If PMI Manufacturing index drops below 45 = Sell AUD/USD

Australia’s PMI manufacturing index is scheduled for release tonight and while weaker business confidence and slower Chinese growth suggests that Australian manufacturing conditions may have deteriorated, this data will be released before markets reopen after the New Years holiday and can only be traded reactively. If the PMI index exceeds 50, we expect the AUD/USD to rally in relief. If the index drops to 45 or lower, we expect AUD/USD to weaken. REACTIVE TRADE

TECHNICALS


While the recent consolidation in AUD/USD suggests that the currency pair is attempting a bottom, the downtrend remains intact as long as AUD/USD remains below 90 cents. A break above this level would open the door for a move to the December high, which crosses with the 38.2% Fibonacci retracement of the 2008 to 2011 rally that took AUD from 60 cents to more than 1.10. If AUD/USD continues to trend lower and breaks below support at the 3 year low of 0.8820, there is no support additional support until the 50% Fib retracement of the same move at 0.8550.

2. NZD/USD – HSBC Manufacturing PMI

FUNDAMENTALS
Chinese PMI Manufacturing expected @ 50.5 (8:45 PM ET / 1:45 GMT)
Our View – Neutral
Reason – Neutral
If PMI Manufacturing exceeds 53 = Buy NZD/USD
If PMI Manufacturing index is 49 or lower = Sell NZD/USD

According to HSBC’s flash manufacturing PMI index, manufacturing activity in China slowed in the month of December. While the AUD/USD is generally the most receptive to Chinese data, the NZD/USD will also be affected. Since this is a second revision, it is best traded reactively. For those who choose to wait, if the PMI index exceeds 53, the NZD/USD can be bought for a move higher. If the PMI index drops to 49 or lower, the NZD/USD can be sold. REACTIVE TRADE

TECHNICALS

Over the past few weeks, NZD/USD has been trading in an increasingly narrow range and this has resulted in the formation of a clear triangle pattern. The top of the triangle is right at the 38.2% Fibonacci retracement of the July to October rally and the 50-day SMA. The bottom of the triangle is at the 50% Fib near 0.8110.

3. EUR/USD – Eurozone PMI Manufacturing Final

FUNDAMENTALS
EZ PMI Manufacturing expected @ 52.7 (4 AM ET / 9 GMT)
Our View – Neutral
Reason – Neutral
If PMI is revised up to 54 or higher = Buy EUR/USD
If PMI is revised down to 51 or lower = Sell EUR/USD

Revisions to Eurozone PMI numbers are not expected to have any impact on the euro unless there is a change. Therefore the only opportunity is to trade the data is reactively in our opinion. If the PMI index is revised up to 54 or higher, the EUR/USD can be bought for a move higher. If PMI is revised down to 51 or lower, the EUR/USD can be sold. REACTIVE TRADE

TECHNICALS


After reversing sharply on Friday, EUR/USD reverted back to its range on Monday and Tuesday. The 61.8% Fibonacci retracement of the 2011 to 2012 sell-off at 1.3835 continues to cap gains in the pair. There is near term support at 1.3700, where the 10 and 20-day SMA converge but more significant support for EUR/USD is down at 1.3630, where the 50-day SMA and second standard deviation Bollinger Band meet.

4. GBP/USD – UK Manufacturing PMI

FUNDAMENTALS
UK PMI Manufacturing expected @ 58.4 (4:30 AM ET / 9:30 GMT)
Our View – Bullish GBP
Reason – Sharp rise in CBI
If UK PMI exceeds 59.5 = Buy GBP/USD
If UK PMI drops below 57.5 = Sell GBP/USD

We have strong reasons to believe that U.K. manufacturing activity improved in December because a similar survey conducted by the Confederation of British Industry rose sharply. As such we feel this data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 59.5, the GBP/USD can be bought for a quick move higher. If the PMI index drops below 57.5, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS


The best way to look at the price action of the GBP/USD is through the monthly chart because it shows how range bound the currency pair has been in recent years. The break of the 38.2% Fibonacci retracement opens the door for a stronger rally to the 2011 highs at 1.6746. If the currency pair moves lower, there is trendline support at 1.6350 and more significant support at 1.62.

5. USD/JPY – ISM Manufacturing

FUNDAMENTALS
ISM Manufacturing expected @ 56.8 (10 AM ET / 15 GMT)
Our View – Neutral
Reason –Slight rise in Empire and Philly, Sharp Drop in Chicago
If ISM index exceeds 58 = Buy USD/JPY
If ISM index drops below 55 = Sell USD/JPY

The national ISM manufacturing index can be an important release for the U.S. dollar. We typically like to trade this report proactively but this month, the higher Empire and Philly Fed survey was offset by a large drop in Chicago PMI, making the data difficult to call. Therefore ISM should be traded reactively. If the index exceeds 58, USD/JPY can be bought for a move higher. If it drops below 55, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS


After breaking through 105, the key resistance level is now 105.70, the 61.8% Fibonacci retracement of the 2007 to 2011 sell-off. If this level is broken there is no major resistance until the 200-month SMA (shown in the chart above) at 107.30. The currency pair is in a strong uptrend but should the rally lose momentum, there is near term support at 104 and more significant support down at the December lows of 101.60.

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