Top 5 10.23.13

TOP 5 HOT IDEAS

DATE: Wednesday Oct 23, 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. AUD/USD – Q3 Consumer Price Index



FUNDAMENTALS
Q3 CPI expected @ 0.8% (8:30 PM ET / 0:30 GMT)
Our View – Neutral
Reason – Decline in Inflation Expectations, but Commodity Prices Up
If CPI growth exceeds 1.0% = Buy AUD/USD
If CPI growth is less than 0.4% = Sell AUD/USD

Australian consumer prices are scheduled for release this evening and while price pressures are important, this quarter’s report is difficult to handicap because inflation expectations declined and commodity prices increased, which are offsetting factors. As a result, we believe that CPI should only be traded reactively. If CPI growth exceeds 1.0%, the AUD/USD can be bought for an extension higher. However if CPI grows by less than 0.4%, the AUD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

9700 taken out
9700-9800 very chunky
9500 now deep support

The Aussie uptrend continues but the pair now faces a stiff resistance at 9700-9800 level and may stall in that range and consolidate. Meanwhile 9500 provides support.

2. GBP/USD – Bank of England Minutes

FUNDAMENTALS
BoE Minutes expected @ (4:30 AM ET / 8:30 GMT)
Our View – Neutral
Reason – Neutral
If one member or more votes to reduce stimulus = Buy GBP/USD
If one member or more votes to raise stimulus = Sell GBP/USD

The Bank of England minutes are scheduled for release tomorrow and given the recent deterioration in UK PMIs, the Bank of England should remain cautious on the outlook for the economy. The focus should be on the tally of votes. If one member or more votes to reduce stimulus the GBP/USD can be bought for an extension higher. If one member or more votes to raise stimulus, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

6200 taken out
Highs not broken
6250 key to further upside

Cable saw a strong move today, but failed to make fresh highs and 6250 remain the key to further upside action.

3. USD/JPY – House Price Index

FUNDAMENTALS
House Price Index expected @ 0.8% (9 AM ET / 13 GMT)
Our View – Neutral
Reason – Neutral
If House Prices grow by 1.5% or more = Buy USD/JPY
If House Prices grow by 0.5% or less = Sell USD/JPY

The U.S.’ house price index is not a huge market mover for the US dollar unless there is a big surprise therefore the data can only be traded reactively. If House Prices grow by 1.5% or more, USD/JPY can be bought for a move higher. If house prices growth is less than 0.5%, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

98.00 still holds
99.00 now stiff resistance
Break of 97.00 opens run to 95.00

Despite dipping to a low of 97.86 USD/JPY continues to hold 98.00 support and a test higher would push to 99.00 resistance as it is now making higher lows which is technically bullish.

4. USD/CAD – Bank of Canada Rate Decision

FUNDAMENTALS
BoC Rate Decision expected @ (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Neutral
If BoC Statement does not mention need for some modest withdrawal = Buy USD/CAD
If BoC Statement remains unchanged, mention eventual need to withdraw stimulus = No Trade

Monetary policy announcements are important for every currency and the Canadian dollar is no exception. The BoC is not expected to change interest rates but as usual, the bias of the central bank can affect how the currency trades. This will be the first meeting led by Stephen Poloz and he is expected to repeat the BoC’s view that “the considerable monetary stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with the 2 per cent inflation target.” Any deviation from the script could cause undue volatility in the loonie. Since the last monetary policy meeting, we have seen more deterioration than improvement in Canada’s economy and if Poloz felt that the line about withdrawing stimulus is no longer necessary, USD/CAD can be sold for a move higher as this would represent renewed dovishness by the central bank. REACTIVE TRADE

TECHNICALS

1.0250 proves support
1.0350 caps upside
Break above opens run to 1.0400

Loonie remains contained on the downside with 1.0250 proving support. Meanwhile 1.0350 caps the upside for now but a break opens a run to 1.0400. A break of 1.0250 to the downside opens a run to 1.0150.

5. EUR/USD – Eurozone Consumer Confidence

FUNDAMENTALS
Eurozone Confidence expected @ -14.5 (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Neutral
If Eurozone Confidence index is less than -10 = Buy EUR/USD
If Eurozone Confidence Index exceeds -20 = Sell EUR/USD

The Eurozone consumer confidence index is not a huge market mover for the euro unless there is a big surprise. Therefore we feel that the data is best traded reactively. If the Eurozone confidence index improves and is less than -10, the EUR/USD can be bought for a move higher. If the Eurozone confidence index exceeds -20, the EUR/USD can be sold for a move lower. REACTIVE TRADE

TECHNICALS

Fresh yearly highs
3800 not yet taken
Break above opens run to 1.4000

The euro has now broken to fresh yearly highs and a run through 1.3800 could open a bigger upmove towards the 1.400 level.

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