Top 5 10.25.13

TOP 5 HOT IDEAS

DATE: Friday Oct 25, 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. USD/JPY – Japanese CPI



FUNDAMENTALS
CPI YoY expected @ 0.9% (7:30 PM ET / 23:30 GMT)
Our View – Neutral
Reason – Neutral
If YoY CPI rises by 0.5% or less = Buy USD/JPY
If YoY CPI grows by 1.5% or more = Sell USD/JPY

Fighting deflation is a top priority for the Bank of Japan but the battle is slow with no major changes expected in Japanese CPI growth. Nonetheless Friday is a quiet day in the forex market and data that does not typically move a currency could have a surprisingly large reaction if the outcome deviates from expectations in a large enough way. In our opinion, Japan’s CPI report should only be traded reactively. If CPI declines by -0.5% or more, USD/JPY can be bought for a move higher. If CPI grows by 0.5% 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 yet again today and the 96.50-97.00 corridor remains a key support level for the pair while 98.00 is now resistance.

2. EUR/USD – German IFO

FUNDAMENTALS
German IFO expected @ 108.0 (4 AM ET / 8 GMT)
Our View – Bullish EUR
Reason – Rise in industrial production, factory orders, PMI Manufacturing and ZEW
If the IFO index exceeds 110 = Buy EUR/USD
If the IFO index is less than 106 = Sell EUR/USD

The German IFO report is scheduled for release tomorrow and the outcome of the report will determine whether the EUR/USD makes new highs. Based on the rise in the PMI manufacturing index along with the ZEW survey, industrial production and factory orders, business confidence should have improved. However we still have a level 2 confidence of this trade because the PMI services index for Germany declined this month. For those who choose to wait, if the IFO index exceeds 110, the EUR/USD can be bought for an extension higher. If the index drops below 106, it can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

3800 taken out
3850 next barrier for longs
3750 holds

EUR/USD continues to run barriers to the topside with 3850 now the next target for longs. Meanwhile 3750 supports downside.

3. GBP/USD – UK GDP

FUNDAMENTALS
Q3 GDP expected @ 0.8% (4:30 AM ET / 8:30 GMT)
Our View – Bearish GBP
Reason – Weaker Retail Sales and Trade Balance
If GDP grows by 1.0% or more = Buy GBP/USD
If GDP grows by 0.6% or less = Sell GBP/USD

The biggest event risk for GBP this week is tomorrow’s GDP report and we have good reasons to believe that U.K. GDP will surprise to the downside because retail sales and trade activity declined in the third quarter. Therefore we feel the GDP report can be traded proactively or reactively. For those who choose to wait, if GDP growth exceeds 1%, the GBP/USD could be bought for an extension higher. If GDP growth is less than 0.6%, the GBP/USD can be sold for a possible corrective move lower. PROACTIVE or REACTIVE TRADE

TECHNICALS

Mild move to 6200
Still cant break highs
6100 supports

Cable has made a mild move to 6200 but its still cant take out the recent highs and for now the 6100-6200 range continues to hold.

4. USD/JPY – US Durable Goods

FUNDAMENTALS
Durable Goods expected 2.3% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Durable Goods orders rises by 3.5% or more = Buy USD/JPY
If Durable Goods orders rises by 1% or less = Sell USD/JPY

Durable goods orders are notoriously volatile and difficult to trade. So the only opportunity we see is to trade the data reactively. If durable goods orders rise by 3.5% or more, USD/JPY can be bought for a move higher. If orders rise by 1% or less, 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 yet again today and the 96.50-97.00 corridor remains a key support level for the pair while 98.00 is now resistance.

5. USD/MXN – Mexico Trade Balance

FUNDAMENTALS
Trade Balance expected @ -256M (9 AM ET / 13 GMT)
Our View – Neutral
Reason – Neutral
If Mexico’s Trade Deficit widens to -300M or larger = Buy USD/MXN
If Mexico’s Trade Deficit narrows to -200M or smaller = Sell USD/MXN

Economic data from Mexico is difficult to handicap and therefore best traded reactively. If Mexico’s Trade Deficit widens to -300M or larger, USD/MXN can be bought for a move higher. If Mexico’s Trade Deficit narrows to -200M or smaller, USD/MXN can be sold. REACTIVE TRADE

TECHNICALS

13.0000 caps the rally
12.8000 near term support
Making higher lows

USD/MXN rebound was capped at 13.0000 but the pair still has a mild bullish bias as it continues to set a series of higher lows suggesting further upside strength.

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