TOP 5 HOT IDEAS

DATE: Monday Oct 28, 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 – Chinese Industrial Profits

FUNDAMENTALS
Chinese Industrial Profits expected @ (9:30 PM ET / 1:30 GMT)
Our View – Neutral
Reason – Neutral
If Profits Exceed 15.0% = Long AUD/USD
If Profits Grow by Less than 5% = Sell AUD/USD

Chinese economic data is notoriously difficult to predict but can have a meaningful impact on AUD/USD. Therefore we feel that industrial profits can only be traded reactively. If profits increase, AUD/USD may resume its rise. If profit growth slows, the sell-off in AUD/USD could gain momentum. REACTIVE TRADE

TECHNICALS

9750 possible double top
9550 holds for now
Break opens run to 9500

The Aussie may have a set near term double top at the 9750 level but the pair so far is holding above the 9550 support. A break there however opens a run towards a deeper correction.

2. GBP/USD – CBI Reported Sales

FUNDAMENTALS
CBI Reported Sales expected @ 32 (7 AM ET / 11 GMT)
Our View – Neutral
Reason – Neutral
If CBI exceeds 38 = Buy GBP/USD
If CBI is less than 29 = Sell GBP/USD

The CBI reported sales index does not have a big impact on the GBP unless there is a big surprise, which is why we believe the data is best traded reactively. If the CBI index exceeds 38, the GBP/USD can be bought for a move higher. If the CBI index drops to 29 or lower, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

6200 still caps for now
Still cant break highs
6100 supports

Cable has made a mild move to 6200 but failed to hold it. The pair is still unable to take out the recent highs and for now the 6100-6200 range continues to hold.

3. EUR/USD – US Industrial Production

FUNDAMENTALS
US Industrial Production expected @ 0.4% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If IP growth is less than 0.2% = Buy EUR/USD
If IP growth exceeds 0.6% = Sell EUR/USD

U.S. industrial production numbers are difficult to handicap and therefore best traded reactively. If industrial production growth is less than 0.2%, the EUR/USD could be bought for a quick move higher. However if IP growth exceeds 0.6%, the EUR/USD can be sold. REACTIVE TRADE

TECHNICALS

3830 caps
3850 next barrier for longs
3750 holds

EUR/USD is consolidating at the 3800 level with 3850 now the next target for longs. Meanwhile 3750 supports downside.

4. USD/JPY – Pending Home Sales

FUNDAMENTALS
Pending Home Sales expected @ -0.4% (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Neutral
If Pending Home Sales grow by 0.1% or more = Buy USD/JPY
If Pending Home sales drop by 3% or more = Sell USD/JPY

Pending home sales is scheduled for release tomorrow and unfortunately U.S. housing market data has been mixed. Therefore we feel that the report is best traded reactively. If Pending home sales grow by 0.1% or more, USD/JPY can be bought for a move higher. If Pending home sales drop by 3% or more, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

97.00 holds
96.50-97.00 key support
98.00 now resistance

USD/JPY remains above the 97.00 level and continues to build a base for a move higher but the 96.50-97.00 corridor remains a key support level for the pair while 98.00 is now resistance.

5. USD/JPY and Nikkei

With no additional noteworthy data on Monday, we want to take this opportunity to share with you one of our favorite charts of the Nikkei and USD/JPY. If you attend our Wednesday World Markets webinar, we talk about the relationship between these 2 instruments often. The chart above highlights the correlation between these 2 instruments and it suggests that USD/JPY’s recent struggle to rally has a lot to do with the sell-off in the Nikkei. Japanese equities have sold off aggressively and this points to possibility of further weakness in USD/JPY.