Top 5 – 04.19.13

TOP 5 HOT IDEAS

DATE: Friday April 19, 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. USD/JPY – Japanese All Industry Activity Index



FUNDAMENTALS
All Industry Activity Index expected @ (12:30 AM ET / 4:30 GMT)
Our View – Neutral
Reason – Neutral
If the index is -2% or worse = Buy USD/JPY
If the index is 0% or better = Sell USD/JPY

Japan’s all industry activity index is not a huge market mover for the Yen unless there is a large surprise. Therefore the data should only be traded reactively. If the index drops to -2% or lower, USD/JPY can be bought for a quick reactive trade. If the index is 0% or better, it can be sold. REACTIVE TRADE

TECHNICALS

98.50 continues to cap topside
97.50 acts as support
Range continues in play

USD/JPY is consolidating between 97.50-98.50 but the upper end of the range continues to cap the action for now. A break below 97.00 opens the way for a retest of recent lows of 95.60, while a break above 98.50 opens a run to the 99.00-100.00 corridor.

2. EUR/USD – German Producer Prices



FUNDAMENTALS
PPI expected @ 0.1% (2 PM ET / 6 GMT)
Our View – Bearish EUR
Reason – Wholesale Prices Declined
If GE PPI rises by 0.4% or more = Buy EUR/USD
If GE PPI declines by -0.2% or more = Sell EUR/USD

We have strong reasons to believe that German producer prices declined in the month of March because wholesale prices, which measure a similar subset of goods fell 0.2%. As a result, we believe that the data can be traded proactively or reactively. For those who choose to wait, if producer prices rise by 0.4% or more, the EUR/USD can be bought for a move higher. If PPI declines by 0.2% or more, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

3000 holds for 2nd day in a row
3100 caps upside
Break below 3000 turns bias very negative

The euro consolidated after yesterday’s massive selloff with 1.3000 continuing to hold, but 3100 caps for now and the pair remains at risk of breaking 3000 which would open the way for a move to 1.2900.

3. USD/CAD – Canadian CPI

FUNDAMENTALS
CPI expected @ (8:30 AM ET / 12:30 GMT)
Our View – Bearish CAD
Reason – Lower IVEY PMI and Raw Material Prices
If CPI is 0% or lower = Buy USD/CAD
If CPI exceeds 0.8% = Sell USD/CAD

We have good reasons to believe that Canadian consumer prices eased in the month of March. According to the IVEY PMI report, prices declined which was further confirmed by the drop in raw material prices. As a result, we believe the data can be traded proactively or reactively. For those who choose to wait, if CPI is 0% or lower, USD/CAD can be bought for a reactive move higher. If CPI exceeds 0.8%, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.0300 caps topside
Remains above 1.0250
1.0350 deeper resistance

The loonie remains above 1.0250 which suggests that weakness persists and a retake of 1.0300 would open a retest of the recent swing highs near the 1.0350 region.

4. USD/MXN – Mexico Unemployment Rate

FUNDAMENTALS
Mexico Unemployment Rate expected 4.67% @ (9 AM ET / 13 GMT)
Our View – Neutral
Reason – Neutral
If the Unemployment Rate exceeds 4.85% = Buy USD/MXN
If the Unemployment Rate is less than 4.6% = Sell USD/MXN

The unemployment report is important for every country and Mexico is no exception. Unfortunately the data is difficult to handicap and therefore can only be traded reactively. If the unemployment rate is 4.85% or higher USD/MXN can be bought for a move higher. However if the unemployment rate drops to 4.6% or lower, USD/MXN can be sold. REACTIVE TRADE

TECHNICALS

Strong rebound continues
12.40 in view
12.05 remains key support

USD/MXN has pushed higher in it recovery off the 12.05 spike bottom with 12.40 in view. 12.50 remains the uppermost resistance for now.

5. Gold & AUD/USD



FUNDAMENTALS
Historically, the Australian dollar has had a positive correlation with the price of gold. However over the past year, this relationship has broken down as yield and country specific factors drive demand for AUD while gold trades on demand for inflation hedges. Yet even during this time (as seen in the chart above), the relationship eventually resumes with the AUD catching up to gold. The reason why this is important now is because gold prices plunged close to 13% in the past week and while the AUD/USD has followed, the decline is a more modest 2.6%. Based on the chart alone, this screams for a deeper correction in the AUD/USD and from a fundamental perspective, the drop in commodity prices will negatively affect the profitability of commodity producers and hence the economy as a whole. The only saving grace for the AUD is carry demand.

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