Top 5 12.12.13

TOP 5 HOT IDEAS

DATE: Thursday Dec 12, 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 Purchases of Foreign Bonds



FUNDAMENTALS
MoF Data on Japan Buying Foreign Bonds expected @ (6:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Purchases exceed 100B = Buy USD/JPY
If Purchases are -100B or lower = Sell USD/JPY

An essential criteria for a resumption of the USD/JPY rally is Japanese purchases of foreign bonds. While this data has become very important it is unfortunately difficult to handicap. The only opportunity to trade this data is reactively. Given the recent rise in U.S. yields, we expect the Japanese to step their demand for foreign bonds. If Japanese purchases exceed 100B, USD/JPY can be bought for a move higher. If the Japanese investors sold -100B worth of foreign bonds or more, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

102.50 given
102.00 next target of shorts
Double top?

USD/JPY increasingly appears as if it has set a double top at 103.30 level and the pressure lower suggest that 102.0 may be given soon with 101.50 now key support of the uptrend.

2. AUD/USD – Australian Employment

FUNDAMENTALS
AU Employment expected @ 10K (7:30 PM ET / 0:30 GMT)
Our View – Bullish AUD
Reason – Rise in Employment Component of Manufacturing and Service PMI
If Employment Change rises by 15K or more = Buy AUD/USD
If Employment Change is flat or declines = Sell AUD/USD

Australian employment numbers are scheduled for release this evening and we have good reasons to believe that the data will surprise to the upside. According to the PMI reports, labor market conditions improved in both the manufacturing and service sector although labor growth in construction slowed. While we only have a level 2 confidence on this trade because consumer confidence also declined, we feel the data can be traded proactively or reactively. For those who choose to wait, if employment increases by 15K or more, the AUD/USD can be bought for an extension higher. If employment is flat or falls the AUD/USD can be sold.

TECHNICALS

9100 given
9050 tested
Bottom in place at 9000 next key level

Aussie saw a major setback in its attempt at recovery today as the pair faded off the 9150 levels to break all the way below 9050. 9000 remains key support and if given suggests a test of yearly lows.

3. EUR/CHF – Swiss National Bank Rate Decision

FUNDAMENTALS
SNB Rate Decision expected @ 0.5% (3:30 AM ET / 7:30 GMT)
Our View – Neutral
Reason – Neutral
If SNB reaffirms commitment to Franc ceiling = No Trade
If SNB hardens commitment to Franc ceiling = Sell EUR/CHF

Central bank rate decisions are always important to a country’s currency particularly the Swiss National Bank and its currency policy. Interest rates in Switzerland are already zero so what investors will be looking for are the central bank’s comments on its currency. If the SNB reaffirms its commitment to its current Franc ceiling there may not be a trading opportunity but if the SNB hardens its stance, then EUR/CHF could rise quickly. As a result, we believe the SNB rate decision can only be traded reactively. REACTIVE TRADE

TECHNICALS

2200 support holds
Possible double bottom
Break opens run to 2100

The downward pressure on EUR/CHF finally came to a small halt at 2200 as the pair tries to establish a double bottom but a break could open a run to 2100.

4. EUR/USD – Eurozone Industrial Production

FUNDAMENTALS
EZ Industrial Production expected @ 0.3% (5 AM ET / 10 GMT)
Our View – Bearish EUR
Reason –Drop in GE and FR IP
If IP rises by 0.5% or more = Buy EUR/USD
If IP drops by -0.1% or more = Sell EUR/USD

We have strong reasons to believe that Eurozone Industrial Production will surprise to the downside. Whenever we look to handicap EZ data, we always turn to the release of its 2 largest economies – Germany and France. Both countries reported a decrease in industrial production in the month of October. As such, we feel that the data can be traded proactively or reactively. If industrial production rises by 0.5% or more, the EUR/USD can be bought for a move higher. If industrial production drops by 0.1% or more, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

3800 taken but not held
3700 now support
Break of 3830 opens run to 3900

The euro probed the 3800 figure but failed to hold it as 3830 remains key resistance. 3700 is support while 3830 break opens run to fresh yearly highs.

5. USD/JPY – US Retail Sales

FUNDAMENTALS
Advance Retail Sales expected @ 0.6% (8:30 AM ET / 13:30 GMT)
Our View – Bearish USD
Reason – Lower ICSC and Redbook Retail Sales
If Retail Sales rises by 0.8% or more = Buy USD/JPY
If Retail Sales grows by 0.2% or less = Sell USD/JPY

According to the consensus forecast, economists expect consumer spending growth to increase in November but we believe there is scope for a downside surprise. Both the International Council of Shopping Centers and Johnson Redbook reported slower spending growth last month. As confidence has been mixed the only real argument for stronger spending are jobs. We feel that this report can be traded proactively or reactively. For those who choose to wait, if retail sales rise by 0.8% or more, USD/JPY can be bought for a move higher. However if retail sales grow by 0.2% or less USD/JPY could be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

102.50 given
102.00 next target of shorts
Double top?

USD/JPY increasingly appears as if it has set a double top at 103.30 level and the pressure lower suggest that 102.0 may be given soon with 101.50 now key support of the uptrend.

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