Top 5 12.18.13

TOP 5 HOT IDEAS

DATE: Wednesday Dec 18, 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. EUR/USD – German IFO



FUNDAMENTALS
German IFO expected @ 109.5 (4 AM ET / 9 GMT)
Our View – Bullish EUR
Reason – Rise PMI Manufacturing and ZEW, Drop in Factory Orders and Industrial Production
If the IFO index exceeds 110 = Buy EUR/USD
If the IFO index is less than 108.5 = Sell EUR/USD

The German IFO report is scheduled for release tomorrow and we believe that the number will surprise to the upside. According to the latest PMIs and ZEW reports, business activity improved but we only have a level 2 confidence on this trade because industrial production and factory orders declined. Nonetheless these reports are more backwards looking than the PMI and ZEW. As such, we feel that the data can be traded proactively or reactively. If the IFO index exceeds 110, the EUR/USD can be bought for an extension higher. If the index drops below 108.5, it can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

3800 still caps
3700 support holds
3700-3800 range holds

The euro continues to hold the 3700-3800 range and may be setting up for a breakout either way.

2. GBP/USD – UK Jobless Claims

FUNDAMENTALS
Jobless Claims Change expected @ -35K (4:30 AM ET / 9:30 GMT)
Our View – Bullish GBP
Reason – Stronger Job Growth in Manufacturing and Services
If Jobless Claims Drop by 48K or more = Buy GBP/USD
If Jobless Claims Drop by 20K or less = Sell GBP/USD

We have good reasons to believe that U.K. labor market conditions improved last month because the manufacturing and service sector saw stronger job growth. As a result, we believe that UK Employment numbers can be traded proactively or reactively. For those who choose to wait, if jobless claims drop by 48K or more, the GBP/USD can be bought for a continued move higher. If claims drop by 20K or less, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

6250 tested
6350 caps upside
Bearish bias in place

Cable has tested the 6250 level as the bearish bias remains in place after failing to take out the 6500 level and the pair could correct to 6200 in near term.

3. USD/CHF – US Housing Starts and Building Permits

FUNDAMENTALS
Housing Starts expected @ 954K & Building Permits expected @ 990K (8:30 AM ET / 13:30 GMT)
Our View – Neutral
Reason – Neutral
If Housing Starts AND Building Permits hit 1M or higher = Buy USD/CHF
If Housing Starts AND Building Permits fall to 900k or less = Sell USD/CHF

U.S. Housing Starts and Building Permits are not huge market movers for the U.S. dollar especially on FOMC day. The data should only be traded reactively and only if there is a big surprise. If Housing Starts and Building Permits hit 1M or more, USD/CHF can be bought for a move higher to rally. If Housing Starts AND Building Permits fall to 900k or lower, USD/CHF can be sold. REACTIVE TRADE

TECHNICALS

8850 tested again
Break opens run to 8800
9000 major resistance overhead

USD/CHF continues to press lower as 8850 is tested again with a break opening a run to 8800. Meanwhile 9000 is upside resistance for now.

4. USD/JPY – FOMC Rate Decision

FUNDAMENTALS
FOMC expected @ (2 PM ET / 18 GMT)
Our View – Neutral
Reason – Neutral
If Fed tapers = Buy USD/JPY
If Fed keeps asset purchases unchanged = Sell USD/JPY

Tomorrow’s FOMC rate decision will be an important one. There’s a 60-40 chance the central bank will reduce asset purchases which makes it a close call. Between the change in monthly bond buys and the forward guidance provided at the press conference, we expect a volatile reaction to the FOMC. The rate decision should only be traded reactively after Bernanke delivers his prepared comments. If the Fed tapers and lays out a clear plan to reduce bond purchases, USD/JPY can be bought for a major break higher. If they leave asset purchases unchanged and provides no forward guidance, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

Consolidation around 103.00
102.50 holds barely
102.00 key support

USD/JPY consolidated today at 103.00 as the pair corrects the latest attempt higher but it must hold the 102.00 level in order to preserve its bullish bias.

5. NZD/USD – Q3 GDP

FUNDAMENTALS
GDP expected @ 1.1% (4:45 PM ET / 22:45 GMT)
Our View – Bearish NZD
Reason – Weaker Trade and consumer spending
If GDP growth exceeds 1.3% = Buy NZD/USD
If GDP growth is less than 0.7% = Sell NZD/USD

New Zealand GDP numbers are due for release this evening and while the economy has been performing well, the third quarter GDP numbers could surprise to the downside because trade activity and retail sales weakened in Q3. We feel that the data can be traded proactively and reactively. If GDP growth exceeds 1.3%, we believe the NZD/USD can be bought for an extension higher. If GDP growth is less than 0.7%, the NZD/USD can be sold. REACTIVE TRADE

TECHNICALS

8200 holds
8400 still caps
Higher lows remain in place

Kiwi maintains its uptrend as higher lows stay in place with 8200 support and 8400 resistance as key range points.

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