TOP 5 HOT IDEAS

DATE: Friday Oct 4, 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 Rate Decision

FUNDAMENTALS
BoJ Announcement expected 1% @ (TBD but usually around 1 AM ET / 5 GMT)
Our View – Neutral
Reason – Neutral
If BoJ leaves monetary policy unchanged = No Trade
If BoJ eases monetary policy = Buy USD/JPY

Central bank rate decisions are always important for a country’s currency but only if there’s potential for a change in monetary policy.
If the BoJ leaves their asset purchase program and interest rates unchanged like we expect, the BoJ meeting should 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 sold for a continued move lower. REACTIVE TRADE

TECHNICALS

97.00 tested
Down trend remains in place
98.00 now resistance

USD/JPY remains in a downtrend having now tested the 97.00 level. That level is key to hold and a break there opens a test of 95.50 level. Upside is capped at 98.00

2. EUR/USD – German Producer Prices

FUNDAMENTALS
PPI expected @ 0% (2 PM ET / 6 GMT)
Our View – Neutral
Reason – Flat CP Growth
If GE PPI rises by 0.3% or more = Buy EUR/USD
If GE PPI declines by -0.3% or more = Sell EUR/USD

German producer prices are scheduled for release on Friday and the lack of inflationary pressures in region should limit the impact of the data on the pair. Therefore the release is only tradable if there is a big surprise. If producer prices rise by 0.3% or more, the EUR/USD can be bought for a move higher. If PPI declines by 0.3% or more, the EUR/USD can be sold. REACTIVE TRADE

TECHNICALS

Break through 3600 holds
3650 caps for now
3500 new support

The uptrend in EUR/USD remains in place with the pair holding above the 3600 but 3650 caps the move so far while 3500 is deep support.

3. GBP/USD – Lloyds Employment Confidence

FUNDAMENTALS
Confidence expected @ (4:30 AM ET / 8:30 GMT)
Our View – Neutral
Reason – Neutral
If Confidence index is -15 or better = Buy GBP/USD
If Confidence index is -28 or worse = Sell GBP/USD

There are very few economic reports scheduled for release on Friday and we do not expect the Lloyds Employment Confidence index to have a major impact on GBP/USD unless there is a meaningful surprise. As a result, the data should only be traded reactively. If Confidence index is -15 or better, the GBP/USD can be bought. If the Confidence index drops to -28 or lower, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

1.6265 highs in place
Test of highs fails
1.6100 now support

Cable continues to fail at the 1.6265 highs and a move through the 1.6200 now opens a test of the 1.6100 level with 1.6000 the deep support for the pair.

4. USD/CAD – IVEY PMI

FUNDAMENTALS
IVEY PMI expected @ 53.6 (10 AM ET / 15 GMT)
Our View – Bullish CAD
Reason – Rise Wholesale sales
If the PMI index drops below 50 = Buy USD/CAD
If the PMI index exceeds 55 = Sell USD/CAD

We have good reasons to believe that manufacturing activity as measured by the IVEY PMI index improved in the month of September because wholesale sales and retail sales increased. As a result we feel that the data can be traded proactively or reactively. For those who choose to wait, if the PMI index drops below 50, USD/CAD can be bought for a move higher. If the PMI index exceeds 55, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.0350 caps the upside
1.0300 near term support
Consolidation in place

Loonie continues to consolidate with 1.0350 capping upside for now and 1.0300 offering a near term support

5. EUR/USD and US 1 Month T-Bill

FUNDAMENTALS

Since the U.S. non-farm payrolls report is delayed, we want to take this opportunity to show a chart of the U.S. 1 month Treasury Bill rate which received quite a bit of attention today. The T-bill rate rose to its highest level since November while credit default swaps surged by the largest amount since 2009, a sign that investors are growing worried about U.S. default risk. The latest push higher in the EUR/USD can be largely attributed to the growing risk of holding U.S. dollars.