TOP 5 HOT IDEAS

DATE: Friday Nov 8, 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 Trade Balance

FUNDAMENTALS
China Trade Balance expected @ 24.8B, Exports expected @ 1.7% (TBD)
Our View – Neutral
Reason – Neutral
If exports grow by 5% or more = Buy AUD/USD
If exports grow by fall by 1% or more = Sell AUD/USD

Chinese trade numbers are scheduled for release this evening and as usual, we expect the report to have a meaningful impact on the commodity currencies and in particular the AUD. Chinese data in general has been good and we expect trade numbers to surprise to the upside but Chinese data is difficult to handicap and should only be traded reactively. Also the primary focus of the trade report will be exports. If exports grow by 5% or more, the AUD/USD can be bought for a move higher. However if export growth falls by 1% or more, the AUD/USD can be sold. REACTIVE TRADE

TECHNICALS

Reversal to bearish
9400 next target of shorts
9500 caps upside

The Aussie rally ran into a wall and the reversal at 9500 suggests further downside action with 9400 now in view.

2. EUR/USD – German Trade Balance

FUNDAMENTALS
Trade Balance expected @ 15.4B (2 AM ET / 7 GMT)
Our View – Neutral
Reason – PMI down but industrial production down and factory orders
If the trade surplus exceeds 18B = Buy EUR/USD
If the trade surplus is less 11B = Sell EUR/USD

This month’s German trade balance report is a tough call because the drop in the PMI index and industrial production was offset by the rise in factory orders. This lack of consistency suggests that the data should be traded reactively. If the trade surplus exceeds 18B, the EUR/USD can be bought for an extension higher. If the trade surplus is less than 11B, the EUR/USD can be sold REACTIVE TRADE

TECHNICALS

Flush to 3300
Gap filled
3500 caps upside

The euro flushed to the downside and now has a clear bearish bias. 3300 supports the downside while 3500 caps the upside for now.

3. GBP/USD – UK Trade Balance

FUNDAMENTALS
UK Trade Balance expected @ -9.2B (4:30 AM ET / 9:30 GMT)
Our View – Neutral
Reason – Lower PMI but Higher Industrial Production
If Trade Deficit is -8.9B or better = Buy GBP/USD
If Trade Deficit is -10B or higher = Sell GBP/USD

This month’s UK trade balance report is a tough call because the drop in the PMI index was offset by a jump in industrial production. This lack of consistency suggests that the data should be traded reactively. For those who choose to wait, if the Trade Deficit is -8.9B or better, the GBP/USD can be bought for a move higher. If the trade deficit is -10B or larger, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

1.6100 fails again
1.6000 now support
1.6100 retake key to upside

Cable continues its recovery rally but the 1.6100 has failed to hold and the pair needs to close above that figure to make a credible challenge of the yearly highs. 1.6000 remains support for now.

4. USD/JPY – Non-Farm Payrolls

FUNDAMENTALS
Non-Farm Payrolls expected @ 120K (8:30 AM ET / 13:30 GMT)
Our View – Neutral
Reason – Neutral
If NFPs exceed 150K = Buy USD/JPY
If NFPs is 100K or less = Sell USD/JPY

The U.S. non-farm payrolls report is a notoriously volatile piece of data to trade and should only be traded reactively. While the employment component of non-manufacturing ISM increased, pointing to the potential for an upside surprise, this month’s release will also be distorted by the U.S. government shutdown. As a result, the U.S. labor market report should only be traded reactively. If payrolls exceed 150K, USD/JPY can be bought for a squeeze higher. If it is less than 100K, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

Flushed both ways
Highly unstable
97.00 and 99.00 both key

The massive reversal in USD/JPY creates a highly unstable situation with 97.00 and 99.00 now both key to next directional moves.

5. USD/CAD – Canadian Employment

FUNDAMENTALS
Canadian Employment expected @ 11K (8:30 AM ET / 13:30 GMT)
Our View – Bearish CAD
Reason – Sharp Decline in employment component of IVEY PMI
If Employment is less than 5K = Buy USD/CAD
If Employment exceeds 20K = Sell USD/CAD

Despite the rise in the IVEY PMI index, we have good reasons to believe that Canadian employment numbers could surprise to the downside because the employment component of the same report declined. The Bank of Canada also recently dropped its bias to raise rates. Therefore we feel the data can be traded proactively or reactively. For those who choose to wait, if Canadian employment rises by 5K or less, USD/CAD can be bought for a resumption of the uptrend. However if Canadian employment exceeds 20K, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.0400 support
1.0500 key resistance
Range holds

USD/CAD continues to hold in range with 1.0400 now proving to be strong support and 1.0500 resistance. A break to the upside opens a run to 1.0600