Top 5 10.24.12

DATE: Oct. 24, 2012

1. AUD/USD – Watch for AUD Q3 CPI and Chinese Data


FUNDAMENTALS
AU CPI Expected at 1.0% (8:30PM ET / 00:30 GMT) & Chinese PMI Expected (9:45PM ET / 1:45 GMT)
Our View – Bearish AUD
Reason – Consumer Inflation Expectations Declined in Q3
If CPI exceeds 1.0% or Chinese PMI Exceeds 49 = Buy AUD/USD
If CPI is less than 0.5% or Chinese PMI Below 47 = Sell AUD/USD

Australian Consumer Prices are scheduled for release at 8:30PM ET / 00:30 GMT. Economists are looking for a sharp rise in CPI because of the carbon tax but underneath it all, price growth may not be as much of a problem because consumer inflation expectations declined in the third quarter. The more important event risk for AUD will be Chinese flash manufacturing PMI from HSBC at 9:45pm ET or 1:45 GMT. If the data shows the economy bottoming, we could see a nice relief rally in AUD/USD but if the manufacturing sector contracts at a stronger pace (ie. The Chinese PMI index drops below 47), concerns about growth in Asia’s largest economy could lead more weakness in AUD/USD and other currencies. While we have a medium level confidence on AUD data, Chinese numbers are notoriously difficult to forecast – REACTIVE TRADE

TECHNICALS
Back below 1.0300
Break of 1.0240 lows opens 1.0200
Only a move above 1.0300 negates bearish bias

AUD/USD is now firmly entrenched in 1.0200-1.0300 range with a negative bias driving the pair and a break of 1.0240 lows opens way for further downside towards 1.0200

SENTIMENT
Risk grossly negative throughout the day: Dow -1.82% Eurostoxx -2.10% Nikkei .04% Oil 86.30 -2.30. Gold 1,708 -14.00

Risk selloff accelerates

2. EUR/USD – Will PMI and IFO Cause More Pain for EUR?

FUNDAMENTALS
German Manufacturing PMI at 48.0 (3:30AM ET / 7:30 GMT) & German IFO Expected at 93.6 (4AM ET / 8GMT)
Our View – Bearish EUR
Reason – Industrial Production and Factory Orders Declined
If GE PMI Manufacturing Exceeds 49 or IFO Greater than 95 = Buy EUR/USD
If GE PMI Manufacturing 48 or Less OR IFO Below 92 = Sell EUR/USD

German PMI manufacturing is scheduled for release at 3:30 AM ET / 7:30 GMT followed by the German IFO report at 4AM ET / 8 GMT. We have strong reasons to believe that the data will surprise to the downside because the recent decline in industrial production and factory orders point to weakness in the manufacturing sector. The ZEW survey was mixed with investors growing less optimistic about current conditions but also less pessimistic about future conditions. These releases can be traded proactively or reactively but if German PMI exceeds 49 or the IFO is greater than 95, the EUR/USD should rally. If PMI is less than 48 or IFO is less than 92, EUR/USD could extend its losses. -- PROACTIVE or REACTIVE TRADE

TECHNICALS
Distribution top confirmed
1.2950 key support of former resistance
Momentum remains negative

As we noted yesterday the negative distribution pattern characterized by the weaker 2nd double top resolved itself to the downside today with only the 1.2950 level holding the fort. 1.2950 is the former resistance now support which if it gives way opens a full run to the downside at the 1.2850 level.

SENTIMENT
Risk grossly negative throughout the day: Dow -1.82% Eurostoxx -2.10% Nikkei .04% Oil 86.30 -2.30. Gold 1,708 -14.00

Risk selloff accelerates

3. USD/JPY – New Home Sales and FOMC

FUNDAMENTALS
New Home Sales Expected @ 3.2% (10AM ET / 14 GMT) & FOMC (2:15 PM ET / 18:15 GMT)
Our View – Neutral
Reason – Existing Home Sales declined in September but new home sales did not experience same improvement
If New Home Sales Exceeds 4.0% = Buy USD/JPY
If New Home Sales Rises by 1.0% or Less = Sell USD/JPY

New Home Sales are due for release at 10AM ET / 14 GMT. Existing home sales rebounded in September, which suggests that new home sales should increase particularly since we have seen improvements in other housing market reports. However the problem is that new home sales did not decline in August, making the chance of a rebound in September slim. It is best to wait for a big surprise before trading new home sales. The more interesting and market moving event risk for the dollar will be the FOMC announcement. Having just announced a third round of Quantitative Easing last month, we do not anticipate any further stimulus from the U.S. central bank. However there have been number of improvements in the U.S. economy since the last meeting and we will be looking to see whether the Fed acknowledges the uptick in data. If they sound encouraged by the improvements in U.S. data, stocks could rebound, helping to ease some safe haven flows out of the U.S. dollar and Japanese Yen. If they err on the side of caution and express skepticism about how long the improvements will last, the sell-off in equities and currencies could deepen. REACTIVE TRADE

TECHNICALS
Picture remains same
80.00 still key to upside
79.50 break opens a move back

There is very little fresh to say about USD/JPY as it continues to hover near the 80.00 level. Consolidation remains constructive but there is major risk of reversal if the upside figure is not take out soon.

SENTIMENT
Risk grossly negative throughout the day: Dow -1.82% Eurostoxx -2.10% Nikkei .04% Oil 86.30 -2.30. Gold 1,708 -14.00

Risk selloff accelerates

4. USD/CAD – Expect Bank of Canada to Reinforce Hawkishness



FUNDAMENTALS
Bank of Canada Monetary Policy Report (10:30 AM ET / 14:30 GMT)
Our View – Neutral to Mildly Bullish
Reason – Neutral
If BoC Sounds Optimistic = Short USD/CAD
If BoC Expresses Fresh Concerns about Economy = Long USD/CAD

The Bank of Canada will release its monetary policy report at 10:30 AM ET / 14:30 GMT. The BoC shocked the market today by keeping the sentence “some modest withdrawal of monetary stimulus will likely be required.” Last week, Governor Carney’s warning of lower growth forecasts led many people to believe that the BoC planned to drop its hawkish monetary policy stance. When they didn’t, USD/CAD plummeted. Growth forecasts were revised lower for 2014 but at the same time, forecasts for 2012 was revised upwards. The monetary policy report should reinforce the central bank’s hawkishness. The BoC was particularly optimistic about domestic conditions, which will most likely come through in tomorrow’s release. – PROACTIVE or REACTIVE TRADE

TECHNICALS
Strong reversal at 9950
But 9900 stems downside
Only break through augurs full turn

As we noted yesterday the stall at the 9950 level suggested an exhaustion move and loonie made a swift reversal at the level today, but at the same time was unable to break through the key 9900 level thus remaining contained in 9950-9900 range for now as break either way should point to a more extended move over the next few days.

SENTIMENT
Risk grossly negative throughout the day: Dow -1.82% Eurostoxx -2.10% Nikkei .04% Oil 86.30 -2.30. Gold 1,708 -14.00

Risk selloff accelerates

5. NZD/USD – First RBNZ Meeting for New Governor

FUNDAMENTALS
RBNZ Rate Decision Expected at 2.5% (4PM ET / 20GMT)
Our View – Neutral
Reason – Neutral
If RBNZ Sounds Dovish = Short NZD/USD
If RBNZ Sounds Neutral = Long NZD/USD

The RBNZ monetary policy announcement is scheduled for 4pm ET / 20 GMT. This will be the very first monetary policy meeting led by Graeme Wheeler. He has not given any major speeches so we do not know much about his monetary policy stance. This will be his first opportunity to share his views and NZD traders will be listening in carefully. We know that a few weeks ago he signed a new policy target agreement that put a more explicit focus on the 2% midpoint. If the RBNZ sounds dovish either through concerns about the local of global economy or talks about the need for easier monetary policy, NZD/USD should weaken. If they sound neutral, NZD/USD could rally in relief. -- REACTIVE TRADE

TECHNICALS
Kiwi look weakest of all commdolls
8115 key near term support
Break below 8100 puts 8000 in view

The technical picture on the kiwi looks to be the weakest of all the commdollars with the pair showing no bounce at all in end of day price action. For now the 8115 support looks to be the main line to the downside and if tripped suggests further negative flows with a possible test of 8000 in view.

SENTIMENT
Risk grossly negative throughout the day: Dow -1.82% Eurostoxx -2.10% Nikkei .04% Oil 86.30 -2.30. Gold 1,708 -14.00

Risk selloff accelerates

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