Top 5 – 10.24.13

TOP 5 HOT IDEAS

DATE: Wednesday Oct 24, 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. NZD/USD – New Zealand Trade Balance



FUNDAMENTALS
New Zealand Trade expected @ -680M (6:45 PM ET / 22:45 GMT)
Our View – Bearish NZD
Reason – Drop in Business PMI Index
If NZ Trade deficit is -200M or smaller = Buy NZD/USD
If NZ Trade Deficit exceeds -1 Billion = Sell NZD/USD

We have good reasons to believe that New Zealand’s trade surplus will surprise to the downside. While the RBNZ is hawkish, the business PMI index declined, signaling weaker manufacturing activity. We feel the data can be traded proactively or reactively. For those who choose to wait, if New Zealand’s trade deficit is -200 million or smaller, the NZD/USD can be bought for an extension higher. If the trade deficit is -1 Billion or larger, the NZD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

Back to 8400 support
Break opens a test of 8300
8600 caps the upside

The kiwi correction too the pair all the way to 8400 and a break there opens a run to 8300 while 8600 caps the upside.

2. USD/JPY – Japanese Purchases of Foreign Bonds

FUNDAMENTALS
MoF Data on Japan Buying Foreign Bonds expected @ (7:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Purchases exceed 100B = Buy USD/JPY
If Purchases are -100B or lower = Sell USD/JPY

An essential criteria for a resumption of the USD/JPY rally is Japanese purchases of foreign bonds. While this data has become very important it is unfortunately difficult to handicap. The only opportunity to trade this data is reactively. Given the recent U.S. fiscal debt troubles, Japanese investors could have cut their demand for Treasuries. If Japanese purchases exceed 100B, USD/JPY can be bought for a move higher. If the Japanese investors sold -100B worth of foreign bonds or more, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

97.00 holds
96.50-97.00 key support
98.00 now resistance

USD/JPY slide stopped short of the 97.00 level and the 96.50-97.00 corridor is a key support level for the pair while 98.00 is now resistance.

3. AUD/USD – Chinese Flash PMI

FUNDAMENTALS
HSBC Flash PMI expected @ 50.4 (9:45 PM ET / 1:45 GMT)
Our View – Neutral
Reason – Neutral
If the PMI index exceeds 50.8 = Buy AUD/USD
If the PMI index is less than 50 = Sell AUD/USD

Chinese manufacturing PMI numbers can have a big impact on the AUD because China is Australia’s number one trade partner. Given the vulnerability of the AUD rally, the currency can be particularly sensitive to incoming data. Since Chinese economic reports are difficult to handicap, we feel they are best traded reactively. If the PMI index exceeds 50.8, meaning that Chinese manufacturing activity increased, the AUD/USD can be bought for a recovery trade. If the index drops below 50 on the other hand, the AUD/USD can be sold for a more aggressive move lower. REACTIVE TRADE

TECHNICALS

Bearish engulfing points lower
9600 key hold
Break opens run to 9500

The Aussie turned in a very bearish engulfing candle on the dailies suggesting that the pair could slide lower with 9600 break opening up a retest of the 9500 level.

4. EUR/USD – Eurozone PMIs

FUNDAMENTALS
Eurozone Composite PMI expected @ 52.4 (4 AM ET / 8 GMT)
Our View – Bullish EUR
Reason – Stronger ZEW, Industrial Production and Factory Orders
If the PMI index exceeds 52.8 = Buy EUR/USD
If the PMI index is less than 52 = Sell EUR/USD

We have good reasons to believe that the Eurozone PMI index could surprise to the upside given the rise in industrial production and factory orders. Therefore we feel that the data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 52.8, the EUR/USD can be bought for a move higher. If the index drops below 52.0, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

3800 still caps
Bullish bias in tact
3700 near term support

Euro has held up well today preserving its bullish bias in tact. 3800 still caps the upside while 3700 is now the near term support

5. USD/JPY – U.S. Trade Balance

FUNDAMENTALS
Trade Balance expected @ -$39.4B (8:30 AM ET / 12:30 GMT)
Our View – Bullish USD
Reason – Stronger ISM Manufacturing
If the Trade deficit is -$35 or smaller = Buy USD/JPY
If the Trade Deficit is -$42B or higher = Sell USD/JPY

We have good reasons to believe that the U.S. trade balance narrowed in August because manufacturing activity expanded and exports increased. Therefore we believe the trade balance report can be traded proactively or reactively. For those who choose to wait, if the Trade Deficit is -$35B or smaller, USD/JPY can be bought for a move higher. If the Trade Deficit is -$43B or larger, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

97.00 holds
96.50-97.00 key support
98.00 now resistance

USD/JPY slide stopped short of the 97.00 level and the 96.50-97.00 corridor is a key support level for the pair while 98.00 is now resistance.

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