Top 5 11.01.12

DATE: Nov 1, 2012

1. AUD/USD – Help from AU and Chinese Manufacturing Data?


FUNDAMENTALS
AU PMI Mfg expected at (7:30PM ET / 22:30GMT) & Chinese PMI Mfg (9PM ET / 1 GMT)
Our View – Bullish AUD
Reason – HSBC Flash PMI Mfg Increased
If AU PMI exceeds 46 or Chinese PMI exceeds 51 = Buy AUD/USD
If AU PMI less than 42 or Chinese PMI less than 48 = Sell AUD/USD

We have good reasons to believe that Australian and Chinese manufacturing reports will be supportive of the AUD. Starting with Australia, the recent interest rate cut from the RBA has lent significant support to the Australian economy. Business confidence improved which points to the possibility of stronger manufacturing activity. Earlier this month, HSBC released its flash manufacturing PMI numbers which showed manufacturing activity in China improving significantly. We expect this strength to carry through to the government’s official release. If PMI returns to expansionary levels, it could be very positive for the AUD. PMI numbers may be traded proactively or reactively. PROACTIVE or REACTIVE TRADE

TECHNICALS

AUD/USD is currently in an uptrend according to our Double Bollinger Bands. 1.0330-45 is a significant support zone because it is where the 50, 100 and 200 day SMA converge. If this level is broken, then the 10/23 low of 1.0235 becomes support. If the data is good and the AUD/USD extends its gains, the rally needs to clear the October high of 1.0413 in order for a real uptrend to emerge and pave the way for a move to 1.05.

SENTIMENT

While the markets have been extremely quiet this week due to the lack of North American participation, AUD/USD is holding near its October highs, which tell us that sentiment is on the side of AUD longs. Good data could get investors more excited about the outlook for the Australian economy.

2. CHF/JPY – Swiss Retail Sales and PMI Manufacturing

FUNDAMENTALS
Retail Sales expected at @ (4:15AM ET / 8:15 GMT) & PMI Mfg at 44.7 (4:30AM ET / 8:30 GMT)
Our View – Neutral
Reason – Neutral
If Retail Sales exceeds 7% or PMI Above 46 = Buy CHF/JPY
If Retail Sales less than 4% or PMI Below 40 = Sell CHF/JPY

Swiss retail sales and manufacturing PMI numbers are due for release tomorrow. These are 2 very important pieces of data for Switzerland and if the surprise is large enough, could have a meaningful impact on the Franc. However a surprise is needed for CHF/JPY to move, sothis data is best traded reactively. The Swiss National Bank has continued to intervene in the Franc to keep the currency weak but we have been seeing a diminishing impact on the economy. If Retail Sales exceeds 7% or PMI is above 46, CHF/JPY should rally. If Retail Sales is less than 4% or PMI is below 40, we expect CHF/JPY to decline. REACTIVE TRADE

TECHNICALS

CHF/JPY is currently in the range trading zone according to our Double Bollinger Bands. Having attempted to enter into the uptrend earlier today, its failure to stay above the first standard deviation BB is a big sign of weakness. Today’s low of 85.33 is the first level of support because this is the 50% Fibonacci retracement of the April to July sell-off. If this level is broken, the 10/30 low at 84.75, which happens to coincide with the 200-day SMA will be the next support. For the uptrend in CHF/JPY to renew, we need to see the currency pair clear its 4 month high of 86.40.

SENTIMENT

The intraday reversal in CHF/JPY means that bulls are losing control.

3. GBP/USD – Manufacturing Activity Could Plunge

FUNDAMENTALS
UK Manufacturing PMI expected at 48 (5:30AM ET / 9:30GMT)
Our View – Bearish GBP
Reason – Sharp Decline in CBI Industrial Trends
If PMI less than 46 = Sell GBP/USD
If PMI Greater than 50 = Buy GBP/USD

We have strong reasons to believe that UK Manufacturing activity slowed more than expected in the month of October. Earlier this month, the Confederation of British Industry released its industrial trends survey and the index plunged to its lowest level in 10 months. As a relatively reliable leading indicator for the manufacturing PMI report, the decline in the CBI index points to a more significant deterioration in manufacturing activity than what is currently expected by economists. If PMI is less than 46, we expect a sharp sell-off in the GBP/USD. Given the decline in the CBI index, the PMI number may be traded proactively or reactively. PROACTIVE or REACTIVE TRADE

TECHNICALS

Today’s rise in the GBP/USD has revived the uptrend in the GBP/USD according to our Double Bollinger Bands. However the 10/25 & 10/26 high of 1.6145 is still an important resistance level that the GBP/USD has had trouble breaking. If it manages to do, the main resistance will be at the 5 month high right above 1.63. Support is at the first standard deviation Bollinger Band and psychologically significant low of 1.60. If this level is broken, the next support will be at the October low of 1.5914.

SENTIMENT

GBP/USD ended the day near its highs but its failure to close above resistance means there is not enough conviction in the rally. Sterling traders are probably waiting for the PMI numbers.

4. USD/JPY – ADP and Jobless Claims to Set Expectations for NFP



FUNDAMENTALS
ADP expected @ 135k (8:15 AM ET / 12:15 GMT) & Jobless Claims expected @ 370K (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If ADP greater than 160K or Claims less than 360K = Buy USD/JPY
If ADP less than 110K or Claims greater than 380K = Sell USD/JPY

Non-farm payrolls will be released on scheduled this Friday, which means it is time to start thinking about the possible outcome of NFPs and its impact on the U.S. dollar. The ADP payrolls estimate and jobless claims report are due for release tomorrow will help to shape the market’s expectations for NFPs. Payrolls are expected to increase slightly in October compared to September. ADP is also expected to increase after the downward revision while jobless claims are expected to hold steady. These numbers are difficult to predict so may be best traded proactively. If ADP greater than 160K or Claims less than 360K, USD/JPY should rise. If ADP is less than 110K or Claims greater than 380K, USD/JPY will decline. REACTIVE TRADE

TECHNICALS

This week, USD/JPY has had a very difficult time sustaining the rally that it enjoyed throughout the month. Currently, there are signs of a short term top in USD/JPY with the currency pair falling out of the uptrend according to our Bollinger Bands. If it drops below 79.15, the 61.8% Fibonacci retracement of the February to March rally, we could see a steeper slide down to the 50-day SMA at 78.60. If it rises back above yesterday’s high of 80.10 and 50% Fibonacci retracement of the same move, then the next level of resistance will be at 81.00.

SENTIMENT

The rally in USD/JPY is beginning to fade, suggesting that a short term top may be in place.

5. USD/JPY – Looking for a Rebound in ISM

FUNDAMENTALS
ISM Manufacturing expected @ 51.0 (10AM ET / 14GMT)
Our View – Bullish USD
Reason – Philly Fed, Empire State and Chicago PMI Increased
If ISM Exceeds 53 = Buy USDJPY
If ISM Less than 50 = Sell USD/JPY

We have strong reasons to believe that manufacturing activity in the U.S. improved last month because all of the regional indices increased. This includes the Philadelphia Fed survey, Empire State manufacturing survey and Chicago PMI. Given the overwhelming signs of stronger activity nationally, the ISM survey can be traded proactively or reactively. PROACTIVE or REACTIVE TRADE

TECHNICALS

This week, USD/JPY has had a very difficult time sustaining the rally that it enjoyed throughout the month. Currently, there are signs of a short term top in USD/JPY with the currency pair falling out of the uptrend according to our Bollinger Bands. If it drops below 79.15, the 61.8% Fibonacci retracement of the February to March rally, we could see a steeper slide down to the 50-day SMA at 78.60. If it rises back above yesterday’s high and 50% Fibonacci retracement of the same move, then the next level of resistance will be at 81.00.

SENTIMENT

The rally in USD/JPY is beginning to fade, suggesting that a short term top may be in place.

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