TOP 5 HOT IDEAS

DATE: Tuesday Oct 1, 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. NZD/USD – ANZ Commodity Prices

FUNDAMENTALS
ANZ Commodity Prices expected @ (8 PM ET / 00 GMT)
Our View – Neutral
Reason – Neutral
If Commodity Prices exceed 1.0% = Buy NZD/USD
If Commodity Prices rise by 0.3% or less = Sell NZD/USD

New Zealand’s ANZ Commodity Price index is not an exceptionally market moving piece of data for the NZD/USD. However if the surprise is large enough, it can be important because commodity prices are a measure of inflationary pressures and potential profitability for commodity producers. The data should only be traded reactively and on a big surprise. If commodity prices grow by 1% or more, we expect the NZD/USD to rally. If commodity prices grow by 0.3% or less, we expect NZD/USD to decline. REACTIVE TRADE

TECHNICALS

8350-8200 consolidation
Momentum waning
Break of 8200 opens test of 8100

The kiwi continues to consolidate in a narrow 8200-8350 corridor but the upside momentum is waning and if the pair breaks 8200 it could make a test of the 8100 level.

2. AUD/USD – Australian Trade Balance

FUNDAMENTALS
Trade Balance expected @ -400M (9:30 PM ET / 1:30 GMT)
Our View – Bullish AUD
Reason – Rise in Manufacturing PMI in August
If Trade deficit is -200M or better = Buy AUD/USD
If Trade surplus is -800M or higher = Sell AUD/USD

We have good reasons to believe that Australia’s trade deficit narrowed in August because that month the PMI manufacturing index increased. The export component of the PMI report also rose confirming our belief that external demand weakened. The data can be traded proactively or reactively. For those who choose to wait, if the Trade deficit is -200M or better, we believe the AUD/USD can be bought for an extension higher. If Trade Deficit is -800M or greater, the AUD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

Big recovery off 9300 support
9450 caps for now
9500 more serious resistance

The Aussie made a strong recovery off the 9300 support which now a true base for the pair, but it faces upside resistance at 9450 and more importantly at the 9500 level.

3. GBP/USD – UK Construction PMI

FUNDAMENTALS
PMI Construction expected @ 59.5 (4:30 AM ET / 9:30 GMT)
Our View – Higher House Prices
Reason – Bullish GBP
If PMI Construction rises to 60 or higher = Buy GBP/USD
If PMI Construction falls to 57 or lower = Sell GBP/USD

We have good reasons to believe that the PMI Construction index will surprise to the upside because house prices have been on the rise in the U.K. As a result, we believe that the data can be traded proactively or reactively. For those who choose to wait, if the construction PMI index exceeds 60, we expect the GBP/USD to rally. If the index falls to 57 or lower, we expect the GBP/USD to decline. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.6250 possible spike top
1.6000 deep support
Break above opens test of 1.6300 highs

Cable may have flamed out at the 1.6250 level as the upside rally saw a reversal today. Support remains at 1.6000 while a take out of the 1.6250 level could open a run through the 1.6300 swing highs.

4. EUR/USD – ECB Rate Decision

FUNDAMENTALS
ECB President Draghi’s Press Conference scheduled for 8:30 AM ET / 12:30 GMT
Our View – Neutral
Reason – Neutral
If Draghi sounds more optimistic about economy = Buy EUR/USD
If Draghi stresses the possibility of more LTRO or negative rates = Sell EUR/USD

When it comes to the ECB rate announcement, Draghi’s press conference is generally the most important part of the meeting. Economic data since the last meeting has been mixed so we do not anticipate any major changes in the central bank’s stance. However if Draghi sounds more optimistic, the EUR/USD could move higher. If he focuses on the possibility of easier monetary policy vis a vis negative rates or another LTRO, the EUR/USD can be sold. REACTIVE TRADE

TECHNICALS

3600 fails to be taken out
3450 still support
Vol break either way could determine direction near term

The euro failed to take out the 1.3600 level and continues to find sellers above 1.3550. 1.3450 is key support and a break of either level could determine direction for the near term.

5. USD/JPY – ADP Employment Change

FUNDAMENTALS
ADP expected @ 180K (8:15 AM ET / 13:15 GMT)
Our View – Neutral
Reason – Neutral
If ADP employment change is 200K or higher = Buy USD/JPY
If ADP employment change is 150K or lower = Sell USD/JPY

It is non-farm payrolls week and the focus on the U.S. labor market kicks off with Wednesday’s ADP report. The index is always difficult to handicap and doesn’t have a great track record of forecasting NFPs but is nonetheless a number the market watches carefully. ADP should only be traded reactively. If private payrolls rise by 200K or more, we believe USD/JPY can be bought for a move higher. If payrolls rise by 150K or less, we believe USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

97.50 holds
Bias remain down
Only break of 99.50 turns momentum

Although USD/JPY once again found support near the 97.50 level the pair remains in a downtrend making lower highs along the way. 97.00 is key support while only a move through 99.50 turns the tide the other way.