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TOP 5 HOT IDEAS
DATE: Monday Jan 6, 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. AUD/USD – PMI Services
PMI Services expected @ (5:30 PM ET / 22:30 GMT)
Our View – Bearish AUD
Reason – Lower PMI Manufacturing and confidence
If PMI Manufacturing exceeds 50 = Buy AUD/USD
If PMI Manufacturing index is 46 or lower = Sell AUD/USD
Australia’s PMI manufacturing index is scheduled for release this evening and based on the drop in the manufacturing PMI index and deterioration in consumer confidence, we have strong reasons to believe that the PMI services report will surprise to the downside. Therefore we feel the data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 50, we expect the AUD/USD to rally. If the index drops to 46 or lower, we expect AUD/USD to weaken. PROACTIVE or REACTIVE TRADE
While the recent consolidation in AUD/USD suggests that the currency pair is attempting a bottom, the downtrend remains intact as long as AUD/USD remains below 90 cents. A break above this level would open the door for a move to the December high, which crosses with the 38.2% Fibonacci retracement of the 2008 to 2011 rally that took AUD from 60 cents to more than 1.10. If AUD/USD continues to trend lower and breaks below support at the 3 year low of 0.8820, there is no support additional support until the 50% Fib retracement of the same move at 0.8550.
2. NZD/USD – Chinese PMI Services
Chinese PMI Non-Manufacturing expected @ (8:45 PM ET / 1:45 GMT)
Our View – Neutral
Reason – Neutral
If PMI Manufacturing exceeds 54 = Buy NZD/USD
If PMI Manufacturing index is 51 or lower = Sell NZD/USD
China’s non-manufacturing PMI report is difficult to handicap but given a large enough surprise could be market moving for the commodity currencies. While the AUD/USD is generally the most receptive to Chinese data, the NZD/USD should also be affected. The data is best traded reactively. If the PMI index exceeds 54, the NZD/USD can be bought for a move higher. If the PMI index drops to 51 or lower, the NZD/USD can be sold. REACTIVE TRADE
Over the past few weeks, NZD/USD has been trading in an increasingly narrow range and this has resulted in the formation of a clear triangle pattern. The top of the triangle is right at the 38.2% Fibonacci retracement of the July to October rally and the 50-day SMA. The bottom of the triangle is at the 50% Fib near 0.8110.
3. EUR/USD – Eurozone PMI Services Final
EZ PMI Manufacturing expected @ 51 (4 AM ET / 9 GMT)
Our View – Neutral
Reason – Neutral
If PMI is revised up to 52 or higher = Buy EUR/USD
If PMI is revised down to 50 or lower = Sell EUR/USD
The final Eurozone PMI numbers are not expected to have any impact on the euro unless there is are revisions. Therefore the only opportunity is to trade the data is reactively. If the PMI index is revised up to 52 or higher, the EUR/USD can be bought for a move higher. If PMI is revised down to 50 or lower, the EUR/USD can be sold. REACTIVE TRADE
After reversing sharply on Friday, EUR/USD reverted back to its range on Monday and Tuesday. The 61.8% Fibonacci retracement of the 2011 to 2012 sell-off at 1.3835 continues to cap gains in the pair. There is near term support at 1.3700, where the 10 and 20-day SMA converge but more significant support for EUR/USD is down at 1.3630, where the 50-day SMA and second standard deviation Bollinger Band meet.
4. GBP/USD – UK PMI Services
UK PMI Services expected @ 60.3 (4:30 AM ET / 10:30 GMT)
Our View – Bearish GBP
Reason – Gfk Down, Drop in UK PMI Manufacturing
If UK PMI exceeds 61 = Buy GBP/USD
If UK PMI drops below 59 = Sell GBP/USD
We have good reasons to believe that U.K. service activity deteriorated in the month of December because manufacturing activity deteriorated and consumer confidence declined. As such we feel this data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 61 the GBP/USD can be bought for a quick move higher. If the UK PMI index drops below 59, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE
The best way to look at the price action of the GBP/USD is through the monthly chart because it shows how range bound the currency pair has been in recent years. The break of the 38.2% Fibonacci retracement opens the door for a stronger rally to the 2011 highs at 1.6746. If the currency pair moves lower, there is trendline support at 1.6350 and more significant support at 1.62.
5. USD/JPY – ISM Non-Manufacturing
US ISM Non-Manufacturing expected @ 54.5 (10 AM ET / 15 GMT)
Our View – Neutral
Reason – Drop in Manufacturing ISM but Rise in Confidence
If ISM exceeds 55 = Buy USD/JPY
If ISM drops below 53 = Sell USD/JPY
The US’ ISM non-manufacturing report is expected to be a big market mover for the U.S. dollar because of the potential implications for non-farm payrolls. Given the drop in the manufacturing ISM index, the data should be weak but confidence improved making it a tough call. So we feel the data is best traded reactively. If the ISM index exceeds 55, USD/JPY can be bought for a recovery. If it drops to 53 or lower, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE
After breaking through 105, the key resistance level is now 105.70, the 61.8% Fibonacci retracement of the 2007 to 2011 sell-off. If this level is broken there is no major resistance until the 200-month SMA (shown in the chart above) at 107.30. The currency pair is in a strong uptrend but should the rally lose momentum, there is near term support at 104 and more significant support down at the December lows of 101.60.