Top 5 10.01.13

TOP 5 HOT IDEAS

DATE: Tuesday Oct 1, 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. USD/JPY – Quarterly Tankan Report



FUNDAMENTALS
Tankan Large Manufacturers Index @ 7 (7:50 PM ET / 23:50 GMT)
Our View – Bullish JPY but no Trade
Reason – Continued Signs of Recovery
If Tankan Index is 4 or lower = Buy USD/JPY
If Tankan Index is 8 or better = Sell USD/JPY

Japan’s Quarterly Tankan survey is one of the country’s most important economic releases because it is a measure of business confidence. Given the general improvements in Japan’s economy, the market is looking for confidence to improve. However the recent market volatility could weigh on sentiment. As a result, we expect a nominal reaction in the JPY unless there is a significant surprise, which is why we feel the data is best traded reactively. If the Tankan index drops to 4 or lower, we expect USD/JPY to rally. If the index rebounds to 8 or higher, we expect USD/JPY to fall. REACTIVE TRADE

TECHNICALS

97.50 holds
99.00 next target of longs
Break of 97.50 opens run to 96.00

USD/JPY found support at the 97.50 level today and had decent rebound towards the 98.50 level. A push through there opens a run towards 99.00 while a break below the key 97.50 hold would be very negative for the pair with 96.00 in view.

2. AUD/USD – RBA Rate Decision

FUNDAMENTALS
RBA Rate Decision expected @ 2.50% (12:30 AM ET / 4:30 GMT)
Our View – Neutral
Reason – Neutral
If RBA tone shifts to neutral from dovish = Buy AUD/USD
If RBA remains dovish = Sell AUD/USD

The RBA is not expected to alter interest rates tonight but the tone of the central bank could have a large impact on how the AUD/USD trades. Economic data from Australia and China have been mixed. If the central bank is optimistic and shifts its tone from dovish to neutral, the AUD/USD can be bought for a further squeeze higher. If the RBA increases its level of dovishness, the AUD/USD can be sold for a resumption of the downtrend. REACTIVE TRADE

TECHNICALS

9300 holds
9250 gap fill test possible
9400 caps the upside

The Aussie continues to hold ground at the 9300 level but a move through 9250 gap fill could open a test of 9200. Meanwhile 9400 caps the upside

3. EUR/USD – German Unemployment

FUNDAMENTALS
German Unemployment expected @ -5K (3:55 AM ET / 7:55 GMT)
Our View – Bullish EUR
Reason – PMI Shows Strongest Gain in Employment in 1.5 Years
If unemployment rolls drop by 10K or more = Buy EUR/USD
If unemployment rolls rise by 10K or more = Sell EUR/USD

We have good reasons to believe that German labor market conditions improved in the month of September because the employment component the flash PMI index rose to its highest level in 1.5 years. Therefore we feel that the data can be traded proactively or reactively. If German unemployment rolls drop by 10K or more, we expect the EUR/USD to rise. If unemployment rolls rise by 10K or more, we expect the EUR/USD to decline. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.3565 still caps
1.3500 near term support
1.3450 deeper support

The euro continues to stall at swing highs near the 1.3565 level but the pair remains in a strong upward bias and a break above opens the move towards 1.3700. Meanwhile 1.3450 offers near term support

4. GBP/USD – UK PMI Manufacturing

FUNDAMENTALS
UK PMI Manufacturing expected @ 57.5 (4:30 AM ET / 8:30 GMT)
Our View – Bullish GBP
Reason – Sharp Improvement in CBI Survey
If PMI Manufacturing index exceeds 59 = Buy GBP/USD
If PMI Manufacturing index drops to 55 or lower = Sell GBP/USD

We have good reasons to believe that U.K. manufacturing activity improved in the month of September because a similar survey conducted by the Confederation of British Industry reported a sharp rise. As a result, we believe this data can be traded proactively or reactively. For those who choose to wait, if the PMI Manufacturing index exceeds 59, the GBP/USD can be bought for a move higher. If the index drops to 55 or lower, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.6200 taken out but not held
1.6000 now support
Break opens run to 1.6300

Cable continues to perform well with 1.6200 taken out but not held yet. The pair remains in a strong upward trend and a break above 1.6200 could open a run towards the 1.6300 level.

5. USD/JPY – Manufacturing ISM



FUNDAMENTALS
ISM Manufacturing expected @ 55 (10 AM ET / 14 GMT)
Our View – Bullish USD
Reason – Higher Philly and Chicago but Weaker Empire
If ISM exceeds 56 = Buy USD/JPY
If ISM is less than 54 = Sell USD/JPY

We have good reasons to believe that the ISM manufacturing report will surprise to the upside because manufacturing activity strengthened in the Chicago and Philadelphia region. However we have a level 2 confidence on this trade because the Empire State index declined. This data can therefore be traded proactively or reactively. For those who choose to wait, if the ISM index exceeds 56, USD/JPY can be bought for a move higher. If the index drops to 54 or lower, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

97.50 holds
99.00 next target of longs
Break of 97.50 opens run to 96.00

USD/JPY found support at the 97.50 level today and had decent rebound towards the 98.50 level. A push through there opens a run towards 99.00 while a break below the key 97.50 hold would be very negative for the pair with 96.00 in view.

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