Top 5 01.08.14

TOP 5 HOT IDEAS

DATE: Thursday Jan 8, 2014

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 Construction



FUNDAMENTALS
PMI Construction expected @ (5:30 PM ET / 22:30 GMT)
Our View – Neutral
Reason – Neutral
If the PMI index exceeds 57 = Buy AUD/USD
If the PMI index is less than 53 = Sell AUD/USD

Australia’s PMI Construction index is not a huge market mover for the Australian dollar unless there is a big surprise so the only opportunity is to trade the report reactively. If the PMI index exceeds 57, the AUD/USD can be bought for a move higher. If the PMI index drops to 53 or less, the AUD/USD can be sold. REACTIVE TRADE

TECHNICALS


8900 tested
8950 caps upside
Break of 8900 opens run to 8850

Aussie survived several runs at the 8900 level but held firm for now. A break of 8900 opens a possible test of multiple support at 8850.

2. EUR/USD – German Trade

FUNDAMENTALS
Trade Balance expected @ 18.9B (2 AM ET / 7 GMT)
Our View – Bullish EUR
Reason – Rise in German PMI, along with new orders and export orders
If the trade surplus exceeds 20B = Buy EUR/USD
If the trade surplus is less 15B = Sell EUR/USD

We have good reasons to believe that Germany will report a stronger trade balance for the month of November because the manufacturing PMI index rose to a 2.5 year high with new orders and export orders rising strongly. Therefore we feel that the data can be traded proactively or reactively. If the trade surplus exceeds 20B, the EUR/USD can be bought for a move higher. If the trade surplus is less than 15B, the EUR/USD can be sold PROACTIVE or REACTIVE TRADE

TECHNICALS

3650 caps the rebound
Downward bias losing momentum
Break below 3550 opens a move to 3350

Euro remains in a corrective phase but the pair has failed to make fresh lows suggesting that some of the downside pressure may be dissipating. 3550-3700 marks the range for now.

3. USD/TRL – Turkish Industrial Production

FUNDAMENTALS
Industrial Production expected @ (3 AM ET / 8 GMT)
Our View – Neutral
Reason – Neutral
If Industrial Production drops by 5% or more = Buy USD/TRL
If Industrial Production rises by 1% or more = Sell USD/TRL

Industrial production numbers are scheduled for release from Turkey tomorrow. Unfortunately the data is difficult to handicap and not incredibly market moving unless there is a big surprise. Therefore we feel that it is best traded reactively. If industrial confidence drops by 5% or more, we expect USD/TRL to rise. If industrial production rises by 1%, we expect USD/TRL to fall. REACTIVE TRADE

TECHNICALS


2.2000 caps upside
2.1000 supports
Upside bias place.

USD/TRY continues its upside bias but the 2.2000 level is now key resistance while 2.1000 provides near term support.

4. USD/CHF – ADP Employment Change


FUNDAMENTALS
ADP expected @ 200K (8:15 AM ET / 13:15 GMT)
Our View – Neutral
Reason – Neutral
If ADP employment change is 225K or higher = Buy USD/CHF
If ADP employment change is 180K or lower = Sell USD/CHF

It is non-farm payrolls week and the focus on the U.S. labor market kicks off with Wednesday’s ADP report. The index is always difficult to handicap and doesn’t have a great track record of forecasting NFPs but is nonetheless a number the market watches carefully. ADP should only be traded reactively. If private payrolls rise by 225K or more, we believe USD/CHF can be bought for a move higher. If payrolls rise by 180K or less, we believe USD/CHF can be sold. REACTIVE TRADE

TECHNICALS


9100 caps move for now
Uptrend in place
Break opens a move to 9200

USD/CHF uptrend maintains momentum but the pair has been capped at 9100 for now. A break above opens a run towards 9200.

5. USD/JPY – FOMC Minutes

FUNDAMENTALS
FOMC Minutes expected @ (2 PM ET / 19 GMT)
Our View – Neutral
Reason – Neutral
If the FOMC minutes show a lot of enthusiasm for tapering = Buy USD/JPY
If FOMC minutes suggests that future decisions should be data dependent = Sell USD/JPY

One of the most important event risks for the U.S. dollar this week will be tomorrow’s FOMC minutes. The central bank will releasing the minutes from its last meeting and given their decision to taper last month, the minutes could have an unusually significant impact on the U.S. dollar. We will be looking for 2 specific details in tomorrow’s release. The first is the motivation for the move and the second is their enthusiasm for a further reduction. The minutes are best traded reactively. If the FOMC minutes show a lot of enthusiasm for tapering with a chorus of central bankers supporting consistent reductions going forward, the dollar can be bought for a move higher. However if there are widespread concerns about the high level of unemployment and low inflation with policymakers emphasizing that a predetermined course is inappropriate and future decisions should be data dependent, the dollar can be sold.
REACTIVE TRADE

TECHNICALS


104.00-105.00 persists
104.00 support holds
Break either way could open wider move.

USD/JPY ended the day at its current equilibrium of 104.50 as it continues to churn between 104.00-105.00 with a break either way leading to a bigger directional move.

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