Top 5 11.08.12

DATE: Nov 8, 2012

1. AUD/USD – How Deep Will Pullback in Employment Be?

Employment expected @ 0.5K (7:30PM ET / 0:30 GMT)
Our View – Bearish AUD
Reason – Service and Construction Sector See Job Losses, Manufacturing Sector
If Employment Change Exceeds 10K = Buy AUD/USD
If Employment Change Less than -5K = Sell AUD/USD

We have good reasons to believe that the momentum in the Australian labor market faded significantly in the month of October. According to the PMI reports, job losses accelerated last month with the employment component of the service and construction sector falling deeper into contractionary territory. While job losses in the manufacturing sector eased, more jobs are still being lost than gained. Usually we like to see consistency in all 3 PMI reports but given the sharp sell-off in risk, we believe there’s an opportunity to trade this data proactively or reactively (though reactively would be best). If employment rises by 10k or more, we expect a nice rebound in the AUD/USD but if it falls by 5k or greater, AUD/USD will extend its slide. PROACTIVE REACTIVE TRADE

Momentum waning
1.0400 support key
Break of 1.0350 puts us back in range

Its been a reversal day in Aussie as the pair has broken the upside level of 1.0405 only to not be able to hold it. A breakdown into 1.0400 region opens way to test 1.0350 and put the pair squarely back into range.

Sharp risk reversal as day progressed Dow -2.36% Europe -2.24% Nikkei -0.03% Oil 84 -4 Gold 1714 -10

2. BoE – Always on the Lookout for Surprises

BoE Rate Announcement expected @ 375B (7 AM ET / 12 GMT)
Our View – Neutral
Reason – Neutral
No Change to Asset Purchase Program = No Trade
BoE Raises APP Program = Sell GBP/USD

Monetary policy announcements always have the potential to trigger volatility in a currency. While the Bank of England is not expected to change interest rates or increase their asset purchase program, we do not rule out the possibility of a surprise. Recent data from the U.K. has been consistently disappointing which supports the case for additional easing from the BoE. If the central bank leaves monetary policy unchanged, there is no trade because the Bank of England does not release a monetary policy statement. However if they raise their asset purchase program, there could be a sharp sell-off in the GBP/USD. The BoE announcement is best traded reactively. REACTIVE TRADE

1.5950 support holds
Downside pressure arrested for now
Break of 1.5950 opens way for move to 1.5800

Cable has been able to hang on in today’s risk reversal as 1.5950 holds and momentum turns positive but a break of 1.5950 would create a very negative pattern of lower highs and point to 1.5800 as the downside target.

Sharp risk reversal as day progressed Dow -2.36% Europe -2.24% Nikkei -0.03% Oil 84 -4 Gold 1714 -10

3. EUR/USD – Dovish Comments expected from ECB Draghi

ECB Press Conference expected at (8:30AM ET / 12:30GMT)
Our View – Bearish EUR
Reason – Draghi warned of slower growth in Germany
ECB Draghi Talks of Continued Easy Monetary Policy = Sell EUR/USD
No Fresh Comments from Draghi on Renewed Risks = Buy EUR/USD

We have strong reasons to believe that ECB President Draghi will have nothing positive to say about the Eurozone economy. This morning, he said the “data suggests economic slowdown has reached Germany” which is an increase in bearishness for the central bank head. He even admitted that if not for the crisis, German bond yields would be higher. Since the ECB is expected to leave monetary policy unchanged, the more market moving component of the central bank meeting will be Draghi’s press conference at 8:30am ET. If the ECB President continues to talk of easy monetary policy, the EUR/USD will extend its losses. If no fresh comments are made, FX traders could drive the EUR/USD higher in relief. Since we have strong reasons to believe that Draghi will be dovish, EUR/USD could be traded proactively or reactively. PROACTIVE or REACTIVE TRADE

Another lower spike higher
1.2750 key support
A break of 1.2735 lows opens way for move through 1.2700

The EURUSD reversal is another negative sign for the pair.We noted yesterday that it was due for a retrace but having now completed it, the euro faces heavy overhead pressure and a break of 1.2735 lows opens way for test of 1.2700.

Sharp risk reversal as day progressed Dow -2.36% Europe -2.24% Nikkei -0.03% Oil 84 -4 Gold 1714 -10

4. USD/CAD – More Weakness Expected in Trade Data

Trade Balance @ -1.50B (8:30AM ET / 13:30 GMT)
Our View – Bearish CAD
Reason – Sharp Decline in IVEY PMI
Trade Deficit Widens to -2.0B or Larger = Buy USD/CAD
Trade Deficit at -1.06B or smaller = Sell USD/CAD

We have strong reasons to believe that Canada’s trade deficit increased in September. According to the IVEY PMI report, manufacturing activity deteriorated significantly last month with particular weakness in inventories. There has been a consistent trend of weaker Canadian data and we expect the same in trade. Given the drop in the IVEY, CAD trade could be traded proactively or reactively but be careful because economists are already looking for a deterioration, making an even worse surprise difficult. PROACTIVE or REACTIVE TRADE

Sharp reversal off .9900 test
Momentum turns positive
2nd attack on parity?

USDCAD made a sharp risk reversal of the 9900 level and now stand ready to make a 2nd assault on the parity level which remains key overhead resistance in the pair.

Sharp risk reversal as day progressed Dow -2.36% Europe -2.24% Nikkei -0.03% Oil 84 -4 Gold 1714 -10

5. USD/JPY – Trade Balance May Narrow

Trade Balance @ -$45B (8:30AM ET / 13:30 GMT)
Our View – Bullish USD
Reason – Increase in Manufacturing ISM
Trade Deficit -$41B or Smaller = Buy USD/JPY
Trade Deficit -$47B or Larger = Sell USD/JPY

We have good reasons to believe the U.S. trade balance narrowed in the month of September because manufacturing activity in the U.S. picked up. While new orders increased, new export orders growth declined so trade data is probably best traded reactively. If the trade deficit is smaller than -$41B, we expect USD/JPY to rally. If it is greater than -$47B, we expect USD/JPY to fall. REACTIVE TRADE

Lower high failure
80.00 given
Test of 79.50 possible

USDJPY has once again failed to break to the upside setting in a lower high at 80.40 and having now broken the 80.00 level is in danger of testing the 79.50 barrier as downside momentum accelerates.

Sharp risk reversal as day progressed Dow -2.36% Europe -2.24% Nikkei -0.03% Oil 84 -4 Gold 1714 -1

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