Top 5 01.07.14

TOP 5 HOT IDEAS

DATE: Tuesday Jan 7, 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 – Australian Trade Balance



FUNDAMENTALS
Trade Balance expected @ -300M (7:30 PM ET / 0:30 GMT)
Our View – Bearish AUD
Reason – Drop in Manufacturing PMI
If Trade deficit is less than -200M = Buy AUD/USD
If Trade deficit exceeds -600M = Sell AUD/USD

We have good reasons to believe that Australia’s trade deficit widened in the month Nov because the PMI manufacturing index fell sharply that month. Both the new orders and export orders component of the report also deteriorated that month. As such, we believe the data can be traded proactively or reactively. For those who choose to wait, if the Trade deficit is less than -200M, we believe the AUD/USD can be bought for a brief recovery. If Trade deficit exceeds -600M, the AUD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS


8800 -9000 range persists
9000 caps upside
8800 provides strong base

Aussie continues to base around the 8800 level but the pair is capped at 9000 as upside break needs the figure to fall in order to start a new uptrend.

2. EUR/USD – German Unemployment

FUNDAMENTALS
German Unemployment expected @ -1K (3:55 AM ET / 8:55 GMT)
Our View – Bullish EUR
Reason – First Rise in Manufacturing PMI since March, Confidence Up
If unemployment rolls drop by 10K or more = Buy EUR/USD
If unemployment rolls rise by 10K or more = Sell EUR/USD

We have good reasons to believe that German labor market conditions improved in the month of December because the employment component of the PMI index increased for the first time since March. As such, we feel that the data can be traded proactively or reactively. If German unemployment rolls drop by 10K or more, we expect the EUR/USD to rise. If unemployment rolls rise by 10K or more, we expect the EUR/USD to decline. PROACTIVE or REACTIVE TRADE

TECHNICALS

3550 holds
Downward bias still in place
Break below 3550 opens a move to 3350

Euro remains in a corrective phase but has found a bid underneath the 3600 level and could make a counter push towards 3700. But a break below 3550 could open a fresh downleg to 3350.

3. USD/JPY – US Trade Balance

FUNDAMENTALS
Trade Balance expected @ -$40B (8:30 AM ET / 13:30 GMT)
Our View – Bearish USD
Reason – Drop in ISM Manufacturing, new export orders down
If Trade deficit is smaller than -$37B = Buy USD/JPY
If Trade deficit exceeds -$42B = Sell USD/JPY

Given the drop in the ISM manufacturing index, we have good reasons to believe that the U.S. trade balance widened in the month of November with new exports down. Therefore we feel that the data can be traded proactively or reactively. If the Trade deficit is smaller than -$37B, USD/JPY can be bought for a move higher. If Trade deficit exceeds -$42B, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS


104.00 tested
Correction in place
103.50 key support

USD/JPY saw a test of 104.00 but for now the pair has been able to hold ground, however a break of 103.50 would suggested a deeper correction.

4. USD/CAD – IVEY PMI Index

FUNDAMENTALS
IVEY PMI expected @ 54.5 (10 AM ET / 15 GMT)
Our View – Bullish CAD
Reason – Stronger Wholesale sales
If the PMI index drops below 52 = Buy USD/CAD
If the PMI index exceeds 56 = Sell USD/CAD

We have good reasons to believe that Canadian manufacturing conditions improved in December. Economic activity in general has been mixed with wholesale sales rising. As such, we feel that the data can be traded proactively or reactively. For those who choose to wait, if the PMI index drops below 52, USD/CAD can be bought for a move higher. If it exceeds 56, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS


1.0600 remains support
1.0700 caps
Break opens a move to 1.0500

USD/CAD continues to find support at 1.0600 while 1.0700 caps the upside as the pair continues to churn at its upper range.

5. USD/JPY and Nikkei

With no additional data scheduled for release on Tuesday, 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 sold off aggressively overnight and that was consistent with the decline in USD/JPY.

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