Top 5 12.03.13


DATE: Tuesday Dec 3, 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 – Chinese Non-Manufacturing PMI

Chinese Non-Manufacturing PMI @ (8 PM ET / 1 GMT)

Our View – Neutral

Reason – Neutral
If PMI index exceeds 58 = Buy NZD/USD

If the PMI index drops to 54 or lower = Sell NZD/USD

Chinese economic data is notoriously difficult to handicap and this is particularly true of the country’s non-manufacturing PMI report. Based on other Chinese data, the economy is slowing but a larger surprise is needed to move the NZD/USD. Therefore we believe the data is best traded reactively. For those who choose to wait, if the PMI index exceeds 58, the NZD/USD can be bought for a move higher. If the PMI index drops to 54 or lower, the NZD/USD can be sold. REACTIVE TRADE


8250 caps
8100 still support
Consolidation of bottom

The kiwi continues to consolidate at the bottom as 8250 caps the upside while 8100 provides support.

2. USD/JPY – Labor Cash Earnings

Labor Cash Earnings expected @ -1.2% (8:30 PM ET / 1:30 GMT)
Our View – Neutral
Reason – Neutral
If Labor Cash Earnings falls by -0.5% or more = Buy USD/JPY
If Labor Cash Earnings rise by 0.5% or more = Sell USD/JPY

Japan’s labor cash earnings report is not a huge market mover for USD/JPY unless there is a big surprise. As a result, the data is best traded reactively. If labor cash earnings fall by 0.5% or more, we expect USD/JPY to extend its gains. If earnings rise by 0.5% or more, USD/JPY could decline slightly. REACTIVE TRADE


103.00 taken out but not held
102.00 now support
Break higher opens test of highs at 103.60

USD/JPY continues to advance toward the yearly highs set six months ago, but 103.00 has proven tricky as the level did not hold for end of day. A break higher opens run on the highs while 102.00 is near term support.

3. AUD/USD – RBA Rate Decision

RBA Rate Decision expected @ 2.50% (11:30 PM ET / 3:30 GMT)
Our View – Neutral
Reason – Neutral
If RBA tone shifts from dovish to neutral = Buy AUD/USD
If RBA remains dovish = Sell AUD/USD

There are a number of Australian economic reports scheduled for release Tuesday but the RBA rate decision will be the most important. The central bank is not expected to alter interest rates tonight but their tone could have a large impact on how the AUD/USD trades. Given the recent trend of Australian data, we feel that the RBA will be dovish and leave the door open to additional easing. However with central bank decisions, it is always best to wait for the data to be released before taking a trade. If the RBA shifts its tone from dovish to neutral, the AUD/USD can be bought for a squeeze higher. If the RBA remains dovish and talks about the possibility of lower rates, the AUD/USD can be sold for a resumption of the downtrend. REACTIVE TRADE


9150 rejected
9050 still support
Break either way could extend move

The Aussie recovery failed to take hold and the pair retreated to 9100 as it continues to consolidate in narrow 9050-9150 zone.

4. GBP/USD – UK PMI Construction

PMI Construction expected @ 59 (4:30 AM ET / 9:30 GMT)
Our View – Neutral
Reason – Neutral
If PMI index exceeds 62 = Buy GBP/USD
If the PMI index drops to 57 or lower = Sell GBP/USD

The U.K.’s PMI construction report is not a huge market mover for the GBP/USD unless there is a significant surprise so the release is best traded reactively. If the PMI index exceeds 62, which means that construction sector activity is expanding at a faster pace, the GBP/USD can be bought for an extension higher. If the index drops to 57 or lower however, the GBP/USD can be sold. REACTIVE TRADE


6400 flames out
6300 now support
Possible near term top

Cable flamed out at the 6400 level failing to hold the figure with 6440 now the key resistance point in this latest rally. 6300 is near term support.

5. EUR/USD – Eurozone PPI

PPI expected @ -0.2% (5 AM ET / 10 GMT)
Our View – Neutral
Reason – Lower German and French PPI
If PPI growth exceeds 0.3% = Buy EUR/USD
If PPI drops by -0.5% or more = Sell EUR/USD

With producer prices falling in Germany and France, we have strong reasons to believe that Eurozone PPI declined in the month of October. As such, we believe the data can be traded proactively or reactively. For those who choose to wait, if the PPI index exceeds 0.3%, we expect the EUR/USD to rally. If it falls by -0.5% or more we expect EUR/USD to decline. REACTIVE TRADE


3600 fails
3500 still supports
Topping out?

The failure of EUR/USD to move beyond 3625 for the fourth day in a row suggests that the pair may be topping out for now and the 3500 could be vulnerable to downside action.

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