Top 5 12.20.13

TOP 5 HOT IDEAS

DATE: Friday Dec 20, 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 – Bank of Japan Rate Decision



FUNDAMENTALS
BoJ Announcement expected @ (TBD but usually around 1 AM ET / 6 GMT)
Our View – Neutral
Reason – Neutral
If BoJ leaves monetary policy unchanged = No Trade
If BoJ Eases monetary policy = Buy USD/JPY

This month’s Bank of Japan meeting is expected to be a nonevent for the Yen because the central bank is comfortable with the current level of policy. If the BoJ leaves their asset purchase program and interest rates unchanged like we expect, the BoJ meeting will be a nonevent for USD/JPY, which is why we think the meeting can only be traded reactively. However if for whatever reason the BoJ decides to ease monetary policy, which we don’t expect, then we believe USD/JPY can be bought for a stronger move higher. REACTIVE TRADE

TECHNICALS

Consolidation around 104.00
103.50 near term support
104.50 key to further upside

USD/JPY has continued to consolidate around the 104.00 level with 103.50 providing support while a break of 104.50 opens the run to the key 105.00 level.

2. EUR/USD – German Producer Prices

FUNDAMENTALS
PPI expected @ -0.1% (2 PM ET / 7 GMT)
Our View – Bullish EUR
Reason – Smaller Decline in Wholesale Prices
If GE PPI rises by 0.4% or more = Buy EUR/USD
If GE PPI declines by -0.4% or more = Sell EUR/USD

We have good reasons to believe that Germany’s producer price report will surprise to the upside because wholesale prices, which measure a similar subset of goods dropped at a slower pace. As a result, we believe that the data can be traded proactively or reactively. For those who choose to wait, if producer prices rise by 0.4% or more, the EUR/USD can be bought for a move higher. If PPI declines by -0.4% or more, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

3650 holds
3750 resistance to upside
Bearish bias in place

The euro held steady in quiet trade today after a major reversal as 3650 continued to provide support. The pair has deeper support at 3600 while 3750 caps any upside for now.

3. GBP/USD – Q3 Current Account and GDP

FUNDAMENTALS
Current Account expected @ -14B & Q3 GDP expected @ 0.8% (4:30 AM ET / 9:30 GMT)
Our View – Bearish GBP
Reason – Weaker Trade Numbers in Q3
If Current Account Deficit is smaller than -12B & Q3 GDP is 0.9% or better = Buy GBP/USD
If Current Account Deficit exceeds -15B & Q3 GDP is 0.7% or worse = Sell GBP/USD

We have good reasons to believe that the U.K.’s current account deficit increased in the third quarter because trade activity, which is one of the primary components of current account widened in Q3. GDP growth on the other hand is not expected to be revised. The data can be traded proactively or reactively. For those who choose to wait, if the current account deficit is smaller than -12B & GDP is revised up to 0.9% or higher, we expect the GBP/USD to rise. If the current account deficit exceeds -15B & Q3 GDP is revised down to 0.7% or worse, we expect the GBP/USD to fall. PROACTIVE or REACTIVE TRADE

TECHNICALS

6350 holds
Remains close to yearly highs
Bullish bias still present

Cable has been remarkably unfazed by the past days events and continues to hold bid near the yearly highs. 6350 offers near term support while 6450 caps upside for now

4. USD/JPY – Final Q3 GDP

FUNDAMENTALS
GDP expected @ 3.6% (8:30 AM ET / 13:30 GMT)
Our View – Neutral
Reason – Neutral
If GDP is revised up to 3.7% = Buy USD/JPY
If GDP is revised down to 3.5% = Sell USD/JPY

U.S. GDP numbers are scheduled for release tomorrow but no revisions are expected. Therefore the data should only be traded reactively. If GDP is revised up to 3.7% or higher, we expect USD/JPY to rally. If GDP is revised down to 3.5% or lower, we expect USD/JPY to sell off. REACTIVE TRADE

TECHNICALS

Consolidation around 104.00
103.50 near term support
104.50 key to further upside

USD/JPY has continued to consolidate around the 104.00 level with 103.50 providing support while a break of 104.50 opens the run to the key 105.00 level.

5. USD/CAD – Canadian Retail Sales

FUNDAMENTALS
Retail Sales expected @ 0.2% (8:30 AM ET / 13:30 GMT)
Our View – Bullish CAD
Reason –Strong Rise in Employment and Wholesale Sales Growth
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 upside because wholesale sales rose strongly and employment increased. Therefore we feel that the 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

TECHNICALS

1.0700 sets the top
1.0600 supports
The rally stalls

The rally in USD/CAD has clearly stalled ahead of the 1.0700 level and the pair may now correct towards 1.0600 as it works off some of the overbought sentiment.

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