Top 5 10.30.13

TOP 5 HOT IDEAS

DATE: Wednesday Oct 30, 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 Industrial Production



FUNDAMENTALS
Industrial Production expected @ 1.8% (7:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Industrial Production rises by 0.2% or less = Buy USD/JPY
If Industrial Production rises by 2.5% or more = Sell USD/JPY

The industrial production report is important to Japan because it is an activity index that can provide clues on how the economy will perform going forward. Unfortunately the data is difficult to handicap and therefore best traded reactively. If industrial production rises by 0.2% or less, USD/JPY can be bought for a move higher. If industrial production rises by 2.5% or more, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

98.00 taken out
Upward bias in place
98.50 next target of longs

USD/JPY has firmly reestablished its upward bias and with 98.00 taken out the next target is 98.50 -99.00 region. Only a break below 97.00 would put the bearish slant back into play.

2. EUR/CHF – UBS Consumption Indicator

FUNDAMENTALS
UBS Consumption Indicator @ (2AM ET / 7GMT)
Our View – Neutral
Reason – Neutral
If UBS Consumption Indicator is less than 1.10 = Buy EUR/CHF
If UBS Consumption Indicator exceeds 1.60 = Sell EUR/CHF

Switzerland’s economic calendar is generally very light but there are a handful of economic releases worth watching month to month and this includes the UBS Consumption indicator which is a measure of demand. Unfortunately the data is difficult to handicap and best traded reactively only on a meaningful surprise. If the index drops to 1.10 or lower, EUR/CHF can be bought for an extension higher. If it is rises to 1.60, EUR/CHF can be sold. REACTIVE TRADE

TECHNICALS

2400 caps the upside
2300 near term support
Upaside stalled

EUR/CHF appears to have run out of momentum at the 2400 level and may now test the near term support at 2300 as it remains in a narrow range.

3. EUR/USD – German Unemployment

FUNDAMENTALS
German Unemployment expected @ 0K (4:55 AM ET / 8:55 GMT)
Our View – Bearish EUR
Reason – Job Growth Slowed According to PMIs
If unemployment rolls drop by 10K or more = Buy EUR/USD
If unemployment rolls rise by 10K or more = Sell EUR/USD

We have good reasons to believe that German labor market conditions deteriorated in October because the employment component of the PMI index declined and this represents deterioration in the labor market. We feel that the data can be traded proactively or reactively. If German unemployment rolls drop by 10K or more, we expect the EUR/USD to rise. If unemployment rolls rise by 10K or more, we expect the EUR/USD to decline. PROACTIVE or REACTIVE TRADE

TECHNICALS

3800 rejected
Break of 3750 bearish
3700 next level of support

The flameout in EUR/USD as the rally through 3800 quickly reversed suggests that the pair is now topping out at the 3800 level and may be in play to test 3700 support and correct further.

4. USD/JPY – FOMC Rate Decision

FUNDAMENTALS
FOMC expected @ (2 PM ET / 18 GMT)
Our View – Neutral
Reason – Neutral
If Fed suggests that tapering in 2013 is still possible = Buy USD/JPY
If Fed downgrades assessment of economy = Sell USD/JPY

The Federal Reserve is scheduled to deliver its monetary policy meeting decision tomorrow and we do not anticipate any changes in interest rates or the size of their Quantitative Easing program. However the central bank could downgrade its description of the economy, which should be negative for the dollar. Back in September, the Fed said the housing market was strengthening and the labor market is showing further improvement but unfortunately both parts of the economy have deteriorated since then and their acknowledgement could solidify expectations for tapering in 2014 versus 2013. If the FOMC statement suggests that tapering in 2013 is still possible, USD/JPY could be bought for a quick move higher. However if the Fed downgrades its assessment of the economy, we believe that USD/JPY can be sold for a more significant move lower. REACTIVE TRADE

TECHNICALS

98.00 taken out
Upward bias in place
98.50 next target of longs

USD/JPY has firmly reestablished its upward bias and with 98.00 taken out the next target is 98.50 -99.00 region. Only a break below 97.00 would put the bearish slant back into play.

5. NZD/USD – RBNZ Rate Decision


FUNDAMENTALS
RBNZ Rate Decision expected @ 2.5% (4 PM ET / 20 GMT)
Our View – Neutral
Reason – Neutral
If RBNZ maintains level of optimism = Buy NZD/USD
If RBNZ is less optimistic = Sell NZD/USD

The Reserve Bank is not expected to change interest rates but their comments about their outlook for the economy and views about the New Zealand dollar could have a significant impact on the currency. When we last heard from the central bank, the RBNZ expressed concerns about the high level of the NZD and while the currency has remained strong since then, there have also been improvements in Australian and China’s economy. If the RBNZ sounds dovish and expresses continued to concern about the NZD, the currency could extend its move lower. If they sound more optimistic, the NZD/USD can be bought for a renewed rally. REACTIVE TRADE

TECHNICALS

Testing 8200 support
Break opens run to 8000
Correction continues

The correction in kiwi continues with the pair now withing striking distance of the 8200 level as it tests a key support. A break there opens a deeper run to 8000.

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