Top 5 11.22.13


DATE: Friday, Nov 22, 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 – BoJ Monthly Report

BoJ Monthly Report @ (12 AM ET / 5 GMT)
Our View – Neutral
Reason – Neutral
If BoJ Downgrades Outlook on Economy = Buy USD/JPY
If BoJ Upgrades Outlook on Economy = Sell USD/JPY

The Bank of Japan’s monthly report is scheduled for release tomorrow and we don’t anticipate any major surprises. As a result, there’s no real trading opportunity unless the BoJ changes its outlook for the economy (which we do not expect). Nonetheless, if the BoJ downgrades their economic assessment, we expect USD/JPY to rise as it would reaffirm the need for more easing. If they upgrade their outlook on the economy, we expect USD/JPY to fall quickly. REACTIVE TRADE


100.50 and 101.00 taken out
101.50 key to upside
Break opens run to yearly highs

The power move in USD/JPY through the 100.50 resistance has take the pair all the way through 101.00 and it can now challenge the last key barrier at 101.50 before attempting a run at yearly swing highs.

2. EUR/USD – German IFO

German IFO expected @ 107.7 (4 AM ET / 9 GMT)
Our View – Neutral
Reason – Drop in PMI Manufacturing and Industrial Production, Rise in Factory Orders and ZEW
If the IFO index exceeds 108.5 = Buy EUR/USD
If the IFO index is less than 106 = Sell EUR/USD

The German IFO report is scheduled for release tomorrow and unfortunately this month’s report is difficult to handicap. According to the latest PMIs, manufacturing activity declined. The same was seen in industrial production but factory orders and the ZEW increased. As such, we feel that the data should only be traded reactively. If the IFO index exceeds 108.5, the EUR/USD can be bought for an extension higher. If the index drops below 106, it can be sold. PROACTIVE or REACTIVE TRADE


3400 holds
3500 caps for now
Still in downtrend

EUR/USD tested the 3400 level but rebounded strongly off those levels. Yet the pair still remains in a downtrend with 3500-3550 capping upside for now.

3. USD/CAD – Canadian Retail Sales

Retail Sales expected @ 0.3% (8:30 AM ET / 13:30 GMT)
Our View – Bearish CAD
Reason –Wholesale Sales Growth Slow, Sluggish Employment
If Retail sales growth declines by -0.1% or more = Buy USD/CAD
If Retail sales growth exceeds 0.5% = Sell USD/CAD

We have good reasons to believe that Canadian retail sales will surprise to the downside because wholesale sales growth slowed in the month of Oct and job growth has been weak. This data can be traded proactively or reactively. For those who choose to wait, if retail sales growth declines by -0.1% or more, USD/CAD can be bought for a move higher. If retail sales growth exceeds 0.5%, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE


1.0500 taken out
Test of yearly highs at 1.0600 possible
1.0400 now support

USD/CAD has taken out the long term resistance at 1.0500 and could move forward to test the yearly highs near 1.0600 where resistance is likely to be more intense. Meanwhile 1.0400 supports.

4. USD/JPY and IMM Positioning


From the perspective of positioning, the latest IMM report showed short Yen positions near a seven-year high. Speculative positions have continued to build over the past few weeks with Yen short or long USD/JPY positions at their highest levels since 2007. When we have positions at such extreme levels, the currency pair is very vulnerable to profit taking on any sign of weakness. The chart highlights the times when IMM short positioning in the Yen hit extreme levels and the corresponding reversal that would follow in USD/JPY.

5. AUD/USD and Gold


The Australian dollar has been hit from all sides. Not only did Chinese PMI surprised to the downside but the Reserve Bank raised the possibility of intervention and gold prices extended the lower. Australia is a major gold producer and the chart above shows the strong correlation between these 2 instruments. If gold continues to trend lower, AUD/USD could drop below 92 cents.

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