Top 5 10.18.12

DATE: Oct. 18, 2012

1. AUD/USD – Further Gains Hinge on Chinese GDP


FUNDAMENTALS
Chinese GDP Expected @ 7.4% (10:00PM ET / 2:00 GMT)
Our View – Neutral
Reason – Tough Call but Expect a Reaction
If Chinese GDP is 7.5% or Better = Buy AUD/USD
If Chinese GDP is Less than 7.4% = Sell AUD/USD

Chinese Q3 GDP and a number of other key economic reports including retail sales and industrial production are scheduled for release at 10:00PM ET / 2:00 GMT. The GDP report will be the most important, particularly for the AUD who counts China as its number one trade partner. But Chinese data won’t just impact the Australian dollar. Risk appetite in general will be affected by the pace of Chinese growth. Based on the forecasts, the Chinese economy is expected to grow at its slowest pace in more than a decade. If GDP growth exceeds expectations and rises by 7.5% or more, the AUD/USD and all high beta currencies for that matter should rise strongly as investors breathe a sigh of relief. However if GDP growth is less than 7.4%, then we are in big trouble because when China sneezes, the rest of the world catches a cold. In the event of weaker than expected GDP growth, the AUD/USD will trade lower. Chinese GDP numbers has the capacity to set the tone for trading for the next 24 hours and so it may be better to wait for the data to be released before taking a trade.

TECHNICALS
Strong bull move as 1.0300 cleared
Faces a series resistance points
1.0450 1.0500 1.0600 all cap ahead

Aussie turned strongly higher today as we noted in yesterday’s piece that a reverse head and shoulders was in the making. However the path higher now faces much stronger resistance as three near term swing highs -- 1.0450, 1.0500 and 1.0600 all look to slow the rally.

SENTIMENT
Risk Appetite decreases as day proceeds: Dow 0.04% Eurostoxx .88% Nikkei 1.21% Oil 91.99 -0.10 Gold 1,7451 +5.00

Sentiment positive but momentum slows

2. USD/CHF – Only a Big Surprise Will Help USD/CHF

FUNDAMENTALS
Swiss Trade Balance @ (2AM ET / 6 GMT)
Our View – Neutral
Reason – No Reaction Unless There is a Big Surprise
If Trade Balance is 2.0B or Better = Sell USD/CHF
If Trade Balance is 1.5B or Less = Buy USD/CHF

Swiss trade numbers are scheduled for release at 2AM ET / 6 GMT. Switzerland’s economic reports do not have a meaningful impact on CHF unless there is a big surprise. In this case, we would need to see the trade surplus increase to 2.0B or better or drop to 1.5B or less. While the Swiss National Bank has gone to great lengths to stem the rise in their currency, weak growth in the Eurozone has curtailed demand, causing exports to suffer. We don’t expect a meaningful pickup in demand in the month of September. This should be a nonevent for the Swiss Franc but with USD/CHF trading at its lowest levels in 5 months, a big downward surprise in Swiss trade numbers could lend support to the currency pair.

TECHNICALS
9200 Key breakdown level
RSI below 30 indicates selling acceleration
A break below opens way to 9000

The Swissie now finds itself at a key juncture with 9200 support the key breakdown level that could clear the way for a move all the way towards
9000 as the pair faces no discernible resistance on the charts. A move into RSI below 30 suggests that selling may accelerate.

SENTIMENT
Risk Appetite decreases as day proceeds: Dow 0.04% Eurostoxx .88% Nikkei 1.21% Oil 91.99 -0.10 Gold 1,7451 +5.00

Sentiment positive but momentum slows

3. EUR/USD – EU Leaders Summit Begins, More Speculation About Spain

FUNDAMENTALS
EU Leaders Summit (Begins at 8AM ET / 12 GMT, Ends at 4AM ET / 8 GMT on Friday)
Our View – Mildly Bearish EUR
Reason – No Announcements Expected
If EU Leaders Make No Announcements = No Trade
If EU Leaders Announce Plans to Release Greek Aid = Buy EUR/USD

The EU Leaders Summit begins at 8AM ET / 12 GMT on Thursday and ends at 4AM ET / 8 GMT on Friday. Euro traders should watch for comments made from attending leaders throughout the 2 day Summit. Based on the snag in Greek Troika negotiations and the recent decline in Spanish bond yields, we do not expect any major announcements which could lead to some profit taking in the euro. Nothing is expected for Spain but in the remote chance that EU Leaders move forward on plans to release the next bailout payment for Greece, the euro will shoot higher.

TECHNICALS
1.3100 taken out but stall before swing high
Hold above 1.3100 suggests consolidation day
1.3175 key resistance level

EURUSD took out the 1.3100 level in heavy early Asian trade yesterday but follow through was tepid at best as the pair stalled ahead of 1.3150.Today’s very tight range action suggests consolidation with 1.3050 or 1.3150 signifying the next directional break as 1.3175 swing high looms large as well.

SENTIMENT
Risk Appetite decreases as day proceeds: Dow 0.04% Eurostoxx .88% Nikkei 1.21% Oil 91.99 -0.10 Gold 1,7451 +5.00

Sentiment positive but momentum slows

4. GBP/USD – Looking for a Rise in Retail Sales



FUNDAMENTALS
UK Retail Sales Expected @ 0.4% (4:30 AM ET / 8:30 GMT)
Our View – Bullish for GBP
Reason – Stronger Employment Numbers, Increase in BRC Retail
If Retail Sales Exceeds 0.8% = Buy GBP/USD
If Retail Sales is Less than 0.1% = Sell GBP/USD

UK retail sales are scheduled for release at 4:30AM ET / 8:30 GMT. Between the decline in the unemployment rate, dip in jobless claims and rise in the BRC retail sales monitor, we expect retail sales to surprise to the upside. The British Retail Consortium surveys retailers on their weekly sales across 12 product categories and in the month of September, sales increased 1.5%, which was the strongest pace of growth this year. With the improvement in the labor market supporting demand, we believe there is a good chance that the government will report a similar rise. UK data can be traded either proactively (Long GBP/USD) ahead of the releases or reactively (after the data is released) because retail sales is significant enough to drive continuation.

TECHNICALS
Can’t clear 1.6200
Close at middle of days range suggests that hesitation ahead
Momentum lacking

Although cable was able to muster yet another upside day, the momentum waned as the session progressed and the pair was unable to take out the 1.6200 figure or even hold the day’s highs providing a very tepid technical picture to the upside. A break of 1.6200 would change that structure to a more constructive tone and would put 1.6300 swing high squarely in view.

SENTIMENT
Risk Appetite decreases as day proceeds: Dow 0.04% Eurostoxx .88% Nikkei 1.21% Oil 91.99 -0.10 Gold 1,7451 +5.00

Sentiment positive but momentum slows

5. USD/JPY – How Much Will Jobless Claims Rebound?

FUNDAMENTALS
Jobless Claims Expected @ 365k (8:30 AM ET / 12:30 GMT) & Philly Fed Expected @ 1.0 (10:00 AM ET / 14:00 GMT)
Our View – Neutral
Reason – Big Surprise Could be Market Moving
If Jobless Claims is at 350k or Less or Philly Fed Exceeds 5 = Buy USD/JPY
If Jobless Claims is at 380k or Higher or Philly Fed is Less than -2 = Sell USD/JPY

U.S. Jobless Claims are scheduled for release at 8:30 AM ET / 12:30 GMT followed by the Philly Fed Survey at 10:00 AM ET / 14:00 GMT. Considering that the jobless claims report last week was distorted by reporting issues from one state, it is not clear how much of a rebound this week’s report will have. However the market is watching claims closely and any major surprises should have an impact on USD/JPY. The Philly Fed survey should surprise to the upside given the improvement in the Empire State survey but this set of U.S. data is best traded post release and only if there is a big surprise.

TECHNICALS
79.00 finally goes -- now what?
79.21 Swing high looms large
78.50 now becomes support

We tweeted earlier that watching the USDJPY breakout today was like watching the worlds slowest car chase and indeed the break of 79.00 sparked no follow through with the pair consolidating ahead of key Asian session. A lift through the 79.20 zone opens the way for a run all the way to 79.50 and possibly 80.00 as the week develops. 78.50 now becomes new support

SENTIMENT
Risk Appetite decreases as day proceeds: Dow 0.04% Eurostoxx .88% Nikkei 1.21% Oil 91.99 -0.10 Gold 1,7451 +5.00

Sentiment positive but momentum slows

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