Top 5 10.23.12

DATE: Oct. 23, 2012

1. AUD/USD – Leading Indicators Could Put More Pressure on AUD


FUNDAMENTALS
Leading Indicators Expected at (8:00PM ET / 00:00 GMT)
Our View – Mildly Bearish AUD
Reason – Lots of Downside Suprise in Data
If Leading Indicators Exceed 0.5% = Buy AUD/USD
If Leading Indicators Less than -0.3% = Sell AUD/USD

Australian Leading Indicators are scheduled for release at 8:00PM ET / 00:00 GMT. There are no forecasts for this release but with the AUD/USD under pressure today and unable to participate in the rally enjoyed by other high beta currencies, a downside surprise could pressure the currency pair lower. In a bearish environment, it doesn’t take much in the way of more bad news to push a currency down. In the case of the AUD/USD, if leading indicators decline by 0.3% or more, we could see AUD slip below 1.03. If it surprises to the upside, the AUD/USD may rally but gains should be contained. – TRADE REACTIVELY IF THERE IS A BIG SURPRISE

TECHNICALS
1.0300 gives way
1.0285 key line of support
RSI slope turns negative

AUD/USD rally proved short lived with the pair returning to the key 1.0300 level after breaking out last week. However today’s decline was contained above the 1.0285 lows suggesting some support for the unit. It now trades in a precarious state as a break below would open the way for a retest of 1.0200 while 1.0350 caps the upside

SENTIMENT
Risk mildly negative as day proceeds: Dow -0.54% Eurostoxx -0.44% Nikkei .09% Oil 88.70 -1.30. Gold 1,722 +2.00

A rebound in risk runs out of gas but selling remains contained.

2. USD/SGD – Is Inflation a Problem?

FUNDAMENTALS
Singapore Consumer Prices Expected @ 0.3% (1:00AM ET / 5:00 GMT)
Our View – Mildly Bullish SGD
Reason – MAS Held Steady This Month, Concerns About Inflation?
If CPI Exceeds 0.6% = Sell USD/SGD
If CPI Less than 0.0% = Buy USD/SGD

Singapore consumer prices are scheduled for release at 1:00AM ET / 5:00 GMT. Economists are looking for softer CPI growth but given the Monetary Authority’s decision to hold policy steady earlier this month, we believe there is scope for an upside surprise. In fact, the MAS said specifically that “Domestic supply-side factors will become more binding. In particular, persistent tightness in the labor market will support slightly stronger wage increases in 2013, which will continue to be passed through to consumer prices.” With higher inflationary pressures seen in other parts of the world during the month of September, a larger than expected uptick in consumer price growth would not be all that unusual. Yet the strength of the Singapore dollar last month could contain some of the pressure. If CPI grows by more than 0.6%, it would reinforce the central bank’s decision not to ease and drive USD/SGD lower. If CPI turns negative, the door to more easing will be swung wide open again, driving USD/SGD higher. – TRADE PROACTIVELY OR REACTIVELY

TECHNICALS
Double bottom in momentum indicators
1.2300 caps the top
1.2200 near term supports

USDSGD has managed to put in a double bottom in RSI over the past several days and now the pair has turned squarely higher. Upside resistance lies at the key 1.2300 round number level while support is at 1.2200 hundred as near term bias is up.

SENTIMENT
Risk mildly negative as day proceeds: Dow -0.54% Eurostoxx -0.44% Nikkei .09% Oil 88.70 -1.30. Gold 1,722 +2.00

A rebound in risk runs out of gas but selling remains contained.

3. USD/CAD – Watch Out for BoC Decision & Retail Sales

FUNDAMENTALS
Retail Sales Expected @ 0.3% (8:30 AM ET / 12:30 GMT) & Bank of Canada Rate Decision (9:00 AM ET / 13:00 GMT)
Our View – Neutral
Reason – Dovish Comments from BoC Gov Carney Suggests Poss Shift to Neutral But Retail Sales Could Surprise to Upside
If BoC drops talk of raising rates = Buy USD/CAD
If BoC continues to say withdraw of stimulus may be needed = Sell USD/CAD

The Canadian retail sales report is scheduled for release at 8:30 AM ET / 12:30 GMT followed by the Bank of Canada rate announcement at 9:00 AM ET / 13 GMT. While we believe that retail sales could surprise to the upside because of a nice uptick in wholesale sales and stronger employment numbers, the Bank of Canada’s monetary policy announcement will have the most significant impact on the CAD. The BoC is not expected to change interest rates but Governor Carney said last week that growth forecasts will revised lower and the central bank is committed to the 2% inflation target. With CPI running well below that level, we believe that the BoC could drop their bias to raise rates. The sentence “modest withdrawal of the present considerable monetary policy stimulus may become appropriate” is what we will be looking for. If it disappears from the statement, USD/CAD will soar. If it remains in the statement, USD/CAD will slide. Monetary policy decisions are tricky, so its best to wait for the decision before taking the trade. – TRADE REACTIVELY

TECHNICALS
Pair stalls at .9950
RSI in overbought which often signals correction
9965 Key break to upside

USDCAD has stalled ahead of the 9950 resistance as the RSI signals deep overbought conditions which in this pair often presages at least a mild correction in the near term. 9900 breakout area acts as first zone of support while a break above 9965 opens the way to a move towards parity.

SENTIMENT
Risk mildly negative as day proceeds: Dow -0.54% Eurostoxx -0.44% Nikkei .09% Oil 88.70 -1.30. Gold 1,722 +2.00

A rebound in risk runs out of gas but selling remains contained.

4. EUR/USD – Eurozone Consumer Confidence



FUNDAMENTALS
Eurozone Consumer Confidence Expected @ -25.9 (10:00 AM ET / 14:00 GMT)
Our View – Neutral
Reason – Neutral
If EZ Confidence Better Than -20 = Buy EUR/USD
If EZ Confidence Less than -30 = Sell EUR/USD

Eurozone Consumer Confidence numbers are scheduled for release at 10:00 AM / 14:00 GMT. We do not anticipate a big reaction to the data unless there is a very large surprise. However as the most actively traded currency pair, the EUR/USD is always a big focus of the market. Its performance will depend on how consumer sentiment fares along with the market’s reaction to the third and final U.S. Presidential Debate. Risk appetite shifted dramatically on Monday with stocks recuperating all of its earlier losses to end in positive territory. With no major European data on the calendar, the euro will be at the whim of news flow and risk.

TECHNICALS
Fails at 3070 again
Possible double top formation
Still contained in 3070-2980 range

The move higher in EURUSD failed at the 1.3070 level again with the pair creating a possible lower high on the way to carving out a double top. On the other hand it ended near the day’s highs and remains well above the 1.3000 figure support, so the pair remains in very tight range environment which generally suggests a breakout may be due soon.

SENTIMENT
Risk mildly negative as day proceeds: Dow -0.54% Eurostoxx -0.44% Nikkei .09% Oil 88.70 -1.30. Gold 1,722 +2.00

A rebound in risk runs out of gas but selling remains contained.

5. USD/JPY – Gunning for a Test of 80

FUNDAMENTALS

There are no major Japanese or U.S. economic data on the calendar tomorrow but USD/JPY is on the move and it is worth talking about. This is the 8th consecutive day that USD/JPY has ended the North American trading session higher or steady against the greenback. While the levels are technically significantly, the move is driven completely by fundamentals. Rapid deterioration in Japanese data has led many economists to believe that the Bank of Japan needs to ease again. At the same time, investors are growing optimistic about the outlook for the U.S. economy and with U.S. 10 year yields moving higher, the rally in USD/JPY is supported by fundamentals and technical. Unless we see a significant decline in U.S. equities (and that may not even be enough as we saw last Friday) or surprisingly weak U.S. data, USD/JPY could power higher. The next threat to the rally is the FOMC meeting. If the Federal Reserve ignores the recent improvements in the economy and emphasizes the downside risks, profit taking could halt the rally.

TECHNICALS
80.00 now in view as momentum accelerates
79.50 now 1st support
80.50 key resistance ahead

The rally in USDJPY is starting to accelerate as the pair approaches the key psychological level of 80.00 which represents the first hurdle to clear, but much more serious resistance comes in at 80.50 while support no stands at the breakout level near the 79.50 zone.

SENTIMENT
Risk mildly negative as day proceeds: Dow -0.54% Eurostoxx -0.44% Nikkei .09% Oil 88.70 -1.30. Gold 1,722 +2.00

A rebound in risk runs out of gas but selling remains contained.

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