Top 5 10.19.12

DATE: Oct. 19, 2012

1. EUR/USD – EU Summit Day 2 and PPI

German PPI Expected @ 0.3% (2AM ET / 6 GMT)
Our View – Bullish EUR
Reason – Wholesale Prices Increased
If German PPI is 0.7% or Better = Buy EUR/USD
If German PPI is Less than 0.0% = Sell EUR/USD

German Producer Prices figures are scheduled for release at 2AM ET / 6 GMT followed by Eurozone current account and the end of the EU Summit at 4AM ET / 8 GMT. No major surprises are expected from the EU Summit and with the market still optimistic that Greece will receive the money she needs and Spain will ask for a bailout, stronger producer prices could propel EUR/USD higher. We have good reasons to believe that German PPI could surprise to the upside because wholesale prices rose 1.3% in September to a 10 month high. German PPI can be traded either proactively (Long EUR/USD) ahead of the releases or reactively (after the data is released) because of the strong potential for an upside surprise.

1.3150 cannot be cleared
MACD sends a sell signal
1.3050 key support for now

Euro failed to take out the 1.3150 level for the second day in a row and a broad selloff in risk took it below the 1.3100 level with short term momentum indicators turning negative as MACD sent a sell signal on 8 hour charts as MACD line crosses the signal line. 1.3050 remains key near term support with 1.3000 the big round number defense as technical picture looks decidedly negative.

Broad risk sell off in North America: Dow -0.06% Eurostoxx .17% Nikkei 2.00% Oil 92.08 -04. Gold 1,742 -10.00

Sentiment turned negative in North America

2. GBP/USD – Will Borrowing Needs Reach New Records?

UK Public Sector Borrowing Expected at GBP11.7B @ (4:30 AM ET / 8:30 GMT)
Our View – Neutral to Marginally Bullish GBP
Reason – UK Borrowing Hit Record High in August, So a Pullback is Expected
If PSNB is 14.4B or Higher = Sell GBP/USD
If PSNB is 12.0B or Lower = Buy GBP/USD

U.K. Public Sector Borrowing numbers are scheduled for release at 4:30 AM ET / 8:30 GMT. The country’s borrowing needs hit a record high in the month of August as the nation ran its largest deficit ever. The larger the deficit, the less likely the government will be able to meet its goal of restoring fiscal finances by 2015. Public sector financing data is not significantly market moving but if there is a major surprise, it could be. Given that borrowing needs hit record levels in August, an improvement is expected in September. This data should only be traded if there is a large change in public sector net borrowing figures. If PSNB exceeds 14.4B, a new record would be made which should be bearish for the GBP/USD but if there is a material improvement, GBP/USD could rally.

Fails a 1.6200 once again
Momentum accelerates to the downside
1.6000 now next support to downside

Cable has been lagging risk for the past few days and today’s vicious turn to the downside changed the picture considerably with the pair now looking more bearish than bullish on near term basis as 1.6000 key level looks to be the next barrier to be tested by shorts.

Broad risk sell off in North America: Dow -0.06% Eurostoxx .17% Nikkei 2.00% Oil 92.08 -04. Gold 1,742 -10.00

Sentiment turned negative in North America

3. USD/CAD – Softer Inflationary Pressures Could Lead to Further CAD Weakness

Canadian Consumer Prices Expected at 0.3% @ (8:30 AM ET / 12:30 GMT)
Our View – Bearish CAD
Reason – Prices in the Manufacturing Sector Declined
If CPI Growth is 0.0% or Lower = Buy USD/CAD
If CPI Growth is 0.6% or Higher = Sell USD/CAD

Canadian Consumer Prices are scheduled for release at 8:30 AM ET / 12:30 GMT. We have strong reasons to believe that the inflationary pressures eased last month because the price component of the IVEY PMI report, which measures conditions in the manufacturing activity declined. This subcomponent of IVEY tends to have a strong correlation with CPI. Considering that dovish comments from Bank of Canada Governor Carney recently reset monetary policy expectations and drove the CAD lower, weaker CPI could fuel further gains in USD/CAD. Considering that we have strong reasons to believe that CPI could weaken (when economists expects it to strengthen) the data can be traded either proactively (Buy USD/CAD) ahead of the releases or reactively after the data is out.

9900-9750 Range dominates trade
Key reversal of yesterday price action
A break above 9900 opens run to 9950

USDCAD produced a key reversal of yesterday’s price action with the pair nearly eclipsing all of yesterday’s losses, yet in the broader terms the pair remains rangebound between 9750 and 9900 and until and unless the 9900 level is broken to the upside the upward move looks to be capped, but momentum has clearly turned on shorter term time frames.

Broad risk sell off in North America: Dow -0.06% Eurostoxx .17% Nikkei 2.00% Oil 92.08 -04. Gold 1,742 -10.00

Sentiment turned negative in North America

4. USD/JPY – More Good News from the U.S.?

US Existing Home Sales Expected @ -2.1% (10AM ET / 14 GMT)
Our View – Neutral to Mildly Bullish USD
Reason – Existing Home Sales is Tough Call but Housing Data has been Good
If Existing Home Sales Grow by 0% or Better = Buy USD/JPY
If Existing Home Sales Fall 5% or More = Sell USD/JPY

U.S. Existing Home Sales are scheduled for release at 10AM ET / 14 GMT. Low interest rates have provided significant support to the housing market and there have been plenty of signs of improvement in the sector. The sharp increase in housing starts and building permits leads us to believe that Existing Home Sales should be strong but after the 7.8% jump in August, a pullback would also be natural. As a result, existing home sales is a tough call. If existing home sales increase in September, USD/JPY should rally but if sales drops by 5% or more, USD/JPY will fall. It is better to wait for a meaningful surprise in the data before taking the trade.

79.00 and 79.20 both get taken out
Breakout holds as 79.00 untouched in selloff
79.50 next key barrier for longs

After stalling for several days the pair finally took out all the near term resistance rising as high as 79.46 before the broad risk selloff took it off the highs. Yet the fact that it stabilized above the 79.00 level bodes well for the pair and as long as that figure holds the bias remains positive with 79.50 the next target of the longs.

Broad risk sell off in North America: Dow -0.06% Eurostoxx .17% Nikkei 2.00% Oil 92.08 -04. Gold 1,742 -10.00

Sentiment turned negative in North America

NZD/USD & Copper


One of the strongest and most interesting relationships in the financial markets is the correlation between the New Zealand dollar and Copper. As shown in the chart below, NZD/USD and Copper have tracked each other for most of the year. There was a brief period of divergence in August but if you look back 5 years, the correlation has been strong. The reason why we have chosen to highlight this relationship is because copper prices increased 1.17% on the LME today and yet the NZD/USD declined. Considering how far back this correlation goes, either the NZD/USD will rebound or copper prices will reverse. While New Zealand does not produce much copper, the country is heavily reliant on demand from Australia who is one of the world’s leading copper producers and interestingly enough, the NZD/USD actually has a stronger correlation with copper than the AUD/USD.

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