Top 5 10.12.12

DATE: Oct. 12, 2012

1. EUR/USD – EZ Industrial Production & US Bank Earnings

FUNDAMENTALS
EZ Industrial Production expected @ -0.5% (5:00AM ET / 9:00 GMT)
Our View – Neutral to Mildly Bullish EUR/USD
Reason – Low Forecasts, Stronger French Industrial Production
If IP is Greater than 0% = Long EUR/USD
If IP is Less than 1% = Short EUR/USD

Eurozone Industrial Production numbers will be released at 5:00AM ET / 9:00 GMT. There is a small chance that IP will surprise to the upside because the forecasts are low which correctly reflects the decline in German industrial production but not French industrial production. Whenever we look to analyze EZ data, we always turn to the reports of the region’s 2 largest economies, which are Germany and France. IP is not one of those reports that is exceptionally market moving (10-15 pips reaction) and our view is for a neutral to small upside surprise. However if IP growth is flat or better, the EUR/USD could enjoy a stronger rally but if it falls by more than 1%, we could see a steeper sell-off. What will be more important for the euro however will be earnings from JPMorgan Chase and Wells Fargo before the stock market open. Stronger earnings would be positive for the EUR/USD while weaker results would be negative.

TECHNICALS
Pair bounced hard off 1.2823 1.2800 remains rock solid support
Close Above – 10 Day SMA 1.2824 sets a bullish bias to the pair
1st Level of Resistance 1.3070 2nd Level 1.3170

EURUSD made a very impressive rebound off the late selloff in yesterday’s North American session and is closing just above the 10 day SMA as the momentum shifts to the longs. For now the 1.2800 support remains in tact and has formed a possible double bottom. First resistance is not until the 1.3070 level with further resistance at 1.3170 providing ample room to push higher.

SENTIMENT
Mixed to Neutral Risk
Equities: Dow -0.07% Eurostoxx +1.24% Nikkei -0.58% Oil 92.18 +.93 Gold 1769 +4.70

Generally lethargic risk appetite as markets trade in narrow ranges, but lack of follow through from yesterday’s Spain downgrade should be viewed as positive.

2. USD/JPY– Stronger PPI & UMich Should Keep USD/JPY above 78

FUNDAMENTALS
US Producer Prices expected @ +0.7% (8:30AM ET / 12:00 GMT) UMich Expected @ 77.9 (10:00AM ET / 14:00 GMT)
Our View – Bullish USD/JPY
Reason – Import Prices Continue to Grow, IBD Reports Uptick in Confidence
If PPI Exceeds 1% / UMich Greater than 80 = Long USD/JPY
If PPI Less than 0.4% / UMich Greater less than 75 = Sell USD/JPY

US PPI will be released at (8:30AM ET / 12:00 GMT) followed by the University of Michigan’s Consumer Sentiment index at (10:00AM ET / 14:00 GMT). There is a good chance that we will see more upside surprises in U.S. data. Import prices grew by 1.1% last month, matching the pace of growth in August. Investors Business Daily, who conducts a similar sentiment survey that tends to be fairly accurate in predicting the direction of UMich also surprised to the upside, rising for the second month in a row. Despite all the problems in the U.S. economy, the stock market performed well last month and the unemployment rate declined – 2 good reasons for investors to be optimistic. Stronger numbers will help keep USD/JPY above 78. Aside from these reports, USD/JPY will also be affected by tomorrow morning’s earnings from JPM and WFC.

TECHNICALS
Pair rebounded from yet another test of 78.00
Failed to close above 78.50
Momentum suggests long term basing

Although both MACD and RSI reading suggest a slow turn in momentum to the upside USDJPY remains mired near its lows with 78.00 serving as strong support for the pair. Today’s failure to close above 78.50 suggests that overhead resistance remains and it need to mount another run at 79.00 before a bullish bias can be confirmed.

SENTIMENT
Mixed to Neutral Risk
Equities: Dow -0.07% Eurostoxx +1.24% Nikkei -0.58% Oil 92.18 +.93 Gold 1769 +4.70

Generally lethargic risk appetite as markets trade in narrow ranges, but lack of follow through from yesterday’s Spain downgrade should be viewed as positive.

#3 USD/SGD – Will MAS Decision Trigger a Breakout?


FUNDAMENTALS
Monetary Authority of Singapore (MAS) Decision at (8:00 PM ET / 0:00 GMT) – Watch for trading band change!
Our View – Bullish USD/SGD
Reason – Larger than expected decline in manufacturing and exports could prompt action by MAS
If MAS drops slope of SGD trading band or widens it = Long USD/SGD
If MAS does nothing = Short USD/SGD

The Monetary Authority of Singapore is expected to make its policy announcement at 8:00 PM ET / 0:00 GMT. Unlike other central banks they use the exchange rate rather than borrowing costs to manage monetary policy. Despite the strength of the labor market, we are looking for the MAS to change its trading band because the economy has underperformed their expectations and the strong currency has taken a big toll on manufacturing activity and exports. At 1.2285, USD/SGD is trading not far from its 1 year low of 1.2175 and its record low of 1.20. Recent weakness in China will increase their urgency to support the export sector and one way the MAS is expected to help is by flattening the slope of the SGD trading band and/or widening it to reduce the central benchmark. If the MAS drops the SGD trading band slope, USD/SGD could hit the top of its trading range. If they do nothing, USD/SGD should fall putting the bottom of the range at risk.

TECHNICALS
Series of higher lows suggests upside bias
Triangle formation looks to be resolved to the upside
1.2200 remains key support

USDSGD has made a series of higher lows over the past month indicating that the long term downtrend may be ending as the pair gets ready for a turn. At the bottom 1.2200 still represents key support but a break of 1.2300 may augur a breakout with longer term upside potential.

SENTIMENT
Mixed to Neutral Risk
Equities: Dow -0.07% Eurostoxx +1.24% Nikkei -0.58% Oil 92.18 +.93 Gold 1769 +4.70

Generally lethargic risk appetite as markets trade in narrow ranges, but lack of follow through from yesterday’s Spain downgrade should be viewed as positive.

#4 USD/MXN – Will MAS Decision Trigger a Breakout?


FUNDAMENTALS
MXN Industrial Production Expected @ (9 AM ET / 13 GMT) – Watch for trading band change!
Our View – Bullish USD/MXN
Reason – Larger than expected decline in manufacturing and exports could prompt action by MAS
If IP is Less than 3% = Long USD/MXN
If IP is Greater than 4% = Short USD/MXN

Mexican Industrial Production will be released at 9 AM ET / 13 GMT. Recent economic reports suggest that Mexico is finally feeling the pain of weaker global growth. Between the slowdown in the U.S. and the slowdown in China, moderating external demand will most likely lead to weaker industrial production. Factory orders, which tend to be a leading indicator for industrial production dropped 4.9% in August. Also the IMEF Manufacturing PMI index decreased which implies that manufacturing activity slowed in the month of August. The data is only meaningful and market moving for the Mexican Peso if industrial production rises by more than 4% or by less than 3%.

TECHNICALS
Failure to take out 13.000 indicates that range still rules
A break above 13.000 opens the way for rally to 13.5000
For now 12.7000 serves as double bottom

USDMXN has been mired in a tight 12.7000-13.000 range for the better part of the last month and today’s price action only confirms that the boundaries still cap all price movement. 12.7000 remains strong double bottom support but only a break above 13.000 opens the way for move towards 13.500 which serves as 1st key resistance on the chart.

SENTIMENT
Mixed to Neutral Risk
Equities: Dow -0.07% Eurostoxx +1.24% Nikkei -0.58% Oil 92.18 +.93 Gold 1769 +4.70

Generally lethargic risk appetite as markets trade in narrow ranges, but lack of follow through from yesterday’s Spain downgrade should be viewed as positive.

#5 USD/CNY – Hits 19 Year Low!

FUNDAMENTALS
No Data Expected, Bit Move that Can’t be Ignored

Our Top 5 Charts aren’t always about economic data. Oftentimes we will point out big moves in currencies that are on our radar. Today, USD/CNY dropped to a 19 year low, testing the upper limit of the central bank’s trading range. The persistent strength of the Chinese Yuan has been caused by speculation that the Chinese government will do more to protect their economy. This strength is surprising though since one of the ways they could stimulate demand is through easier monetary policy, which is negative for their currency. Either way, demand is Yuan is strong, putting sentiment on the side of the CNY. Technically, the record low for USD/CNY means that the pair has already broken through key support levels. The next area of support will be the psychologically significant 6.25 level. However technical matter little when a currency is managed so closely by the central bank.

TECHNICALS
6.2500 now serves as pivotal support
A break below opens way for key 6.0000 level
Momentum suggests further downside action

Fresh multi-year lows should always be paid attention to as price action suggests that a break below the key 6.2500 support could take USDCNY all the way to the 6.0000 round number level as the multi-year downtrend continues

SENTIMENT
Mixed to Neutral Risk
Equities: Dow -0.07% Eurostoxx +1.24% Nikkei -0.58% Oil 92.18 +.93 Gold 1769 +4.70

Generally lethargic risk appetite as markets trade in narrow ranges, but lack of follow through from yesterday’s Spain downgrade should be viewed as positive.

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