Top 5 10.31.13

TOP 5 HOT IDEAS

DATE: Thursday Oct 31, 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 – Australian Building Approvals



FUNDAMENTALS
Building Approvals expected @ 2.8% (8:30 PM ET / 0:30 GMT)
Our View – Neutral
Reason – Neutral
If Building Approvals grow by 4% or more = Buy AUD/USD
If Building Approvals fall by 1% or more = Sell AUD/USD

Australian building approvals are scheduled for release this evening and we feel that it is best traded reactively because it is not a big market mover for the AUD unless there is a meaningful surprise. If Building Approvals grow by 4% or more, the AUD/USD can be bought for a move higher. If Building Approvals fall by 1% or more, the AUD/USD can be sold. REACTIVE TRADE

TECHNICALS

9450 tested
9500 now small resistance
9550 is stronger resistance

The Aussie remains firmly in a corrective mode with 9450 tested. For now 9500 and 9550 act as resistance while a break lower could open a run to 9400.

2. USD/JPY – Bank of Japan Rate Decision

FUNDAMENTALS
BoJ Announcement expected @ (TBD but usually around 1 AM ET / 6 GMT)
Our View – Neutral
Reason – Neutral
If BoJ Downgrades GDP forecast in Semiannual Outlook = Buy USD/JPY
If BoJ Upgrades GDP forecast in Semiannual Outlook = Sell USD/JPY

The Bank of Japan is not expected to change monetary policy but that does not mean the rate decision will be a complete nonevent for the Yen because the central bank will also be releasing their Semi Annual outlook on the economy. Given the tremendous amount of detail in the report, it should only be traded reactively. If the BoJ downgrades their 2013 and 2014 GDP forecast, USD/JPY can be bought for a move higher but if they upgrade their forecasts, it can be sold for an extension lower. REACTIVE TRADE

TECHNICALS

98.50 taken out
Upward bias remains in place
99.00 next target of longs

USD/JPY as we’ve been noting for past few days continues to maintain its upward bias and with 98.50 taken out the next target is the 99.00 figure which may offer stiff resistance. Only a break below 97.00 would put the bearish slant back into play.

3. EUR/USD – German Retail Sales

FUNDAMENTALS
German Retail Sales expected @ 0.4% (3 AM ET / 7 GMT)
Our View – Bearish EUR
Reason – Drop in Retail PMI, Improvement in Employment
If Retail Sales exceed 0.7% = Buy EUR/USD
If Retail Sales growth is less than 0.2% = Sell EUR/USD

We have good reasons to believe that tomorrow’s German retail sales could surprise to the downside. According to the latest retail PMI report, which also measures consumer demand, spending weakened in the month of September. As such we believe that, retail sales can be traded proactively or reactively. If German retail sales growth exceeds 0.7%, the EUR/USD can be bought for a move higher. If retail sales grow by 0.2% or less, the EUR/USD can be sold. REACTIVE TRADE

TECHNICALS

3700 tested but held
3800 now resistance
Next break of 3700 could open a run to 3600

The downdraft in EUR/USD continues with 3700 now tested late in the day. Although the pair bounced, the pressure remain to the downside and a move through 3700 again could open a run to 3600.

4. USD/CAD – Canadian GDP

FUNDAMENTALS
GDP expected @ 0.1% (8:30 AM ET / 12:30 GMT)
Our View – Bearish CAD
Reason – Weaker Retail Sales, Larger Trade Deficit
If GDP growth contracts = Buy USD/CAD
If GDP growth is 0.6% or more = Sell USD/CAD

We have strong reasons to believe that Canadian GDP growth will surprise to the downside because retail sales and trade activity deteriorated in the month of August. As such, we feel that the data can be traded proactively or reactively. If GDP growth contracts, USD/CAD can be bought for a move higher. If GDP growth exceeds 0.6%, USD/CAD can be sold. REACTIVE TRADE

TECHNICALS

1.0500 rejected
1.0400 near term support
Break higher opens run to 1.0600

USD/CAD marches higher, but the 1.0500 area quickly found sellers for now. A break above opens up a test of swing highs at the 1.0600 level.

5. USD/JPY – Chicago PMI

FUNDAMENTALS
Chicago PMI expected @ 55 (9:45 AM ET / 13:45 GMT)
Our View – Bearish USD
Reason – Weaker Empire and Philly
If Chicago PMI exceeds 58 = Buy USD/JPY
If Chicago PMI is less than 52 = Sell USD/JPY

We have good reasons to believe that the Chicago PMI report will surprise to the downside because manufacturing activity weakened in the Chicago and Philadelphia regions. As such we feel that this data can therefore be traded proactively or reactively. For those who choose to wait, if the Chicago PMI index exceeds 58, USD/JPY can be bought for a move higher. If the index drops to 52 or lower, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

98.50 taken out
Upward bias remains in place
99.00 next target of longs

USD/JPY as we’ve been noting for past few days continues to maintain its upward bias and with 98.50 taken out the next target is the 99.00 figure which may offer stiff resistance. Only a break below 97.00 would put the bearish slant back into play.

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