Top 5 – 04.24.13


DATE: Wednesday April 24, 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 – RBNZ Rate Decision


The Reserve Bank of New Zealand’s monetary policy announcement has been released and should therefore only be traded reactively. The New Zealand dollar traded higher after the Reserve Bank’s monetary policy announcement. The RBNZ left interest rates unchanged at 2.5% and instead of focusing on the negative implications of the drought, they said growth has picked up with consumer spending increasing and the Canterbury rebuilding efforts gaining momentum. They also indicated that house price inflation is high in some regions and that the medium term outlook for their trading partner’s GDP growth is strong. The central bank is worried about the strong currency and the headwinds it creates for the economy but that was clearly not enough for them to tone down their optimism. This move could have continuation providing additional opportunity in the NZD/USD. REACTIVE TRADE


Holds near 8400
8450 next target for longs
8350 next key support

The kiwi continues to consolidate near the 84.00 level with the key 8350 support holding. A break of 8450 opens the prospect of a run to 8500


CPI expected @ 0.7% (9:30 PM ET / 1:30 GMT)
Our View – Bullish AUD
Reason – Higher Commodity Prices and Price Component of PMI
If CPI exceeds 1.0% = Buy AUD/USD
If CPI grows by less than 0.3% = Sell AUD/USD

We have strong reasons to believe that consumer prices in Australia increased in the first quarter because commodity prices soared. Oil prices for example started the year at $90 a barrel and ended the first quarter at $97 a barrel. The price component of the manufacturing and service sector PMI reports also confirm that inflationary pressures increased in Q1. As a result, we believe that Australian CPI can be traded proactively or reactively. For those who choose to wait, if CPI grows by more than 1%, the AUD/USD can be bought for a move higher. If CPI grows by less than 0.3%, the AUD/USD can be sold. PROACTIVE or REACTIVE TRADE


1.0235 holds
1.0300 remains key resistance
Break of 1.0220 opens run to 1.0200

The Aussie continues to hold around the 1.0250 level although the pair remains skewed to the downside and a break of 1.0220 opens the path to 1.0200 and lower.

3. EUR/CHF – UBS Consumption Indicator

UBS Consumption Indicator expected @ (2 AM ET / 6 GMT)
Our View – Neutral
Reason – Neutral
If UBS index is less than 1.0 = Buy EUR/CHF
If UBS index exceeds 1.5 = Sell EUR/CHF

Switzerland does not release many economic reports so when they do, it can be important. However the data is difficult to forecast and therefore best traded reactively. If the UBS consumption index, which is a measure of spending drops to 1.0 or lower, EUR/CHF can be bought for a quick move higher. If the index exceeds 1.5, EUR/CHF can be sold. REACTIVE TRADE


Big breakout as 2250 taken out
2300-2350 next corridor of trade
2200 now supports

EUR/CHF finally popped above the key resistance level of 1.2250 and now the breakout looks like it may have juice to go as it tries to move into the 2300-2350 corridor while 2200 now acts as support

4. EUR/USD – German IFO Report

IFO report expected @ 106.2 (4 AM ET / 8 GMT)
Our View – Bearish EUR
Reason – Weaker PMI and ZEW
If IFO index rises to 107 or higher = Buy EUR/USD
If IFO index drops to 105.5 or lower = Sell EUR/USD

We have good reasons to believe that the German IFO report will fall short of expectations, showing a decline in business confidence. Between the sharp drop in German service and manufacturing PMI numbers along with the pullback in investor confidence, a weak IFO is all that the euro needs to make its recent break of 1.30 sustainable. We believe the data can be traded proactively or reactively. For those who choose to wait, if the IFO index rises to 107 or higher, the EUR/USD can be bought for a quick move higher. If the IFO index drops to 105.5 or lower, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE


1.3000 broken
1.2950 holds for now
1.3125 caps upside

The euro broke the key 1.3000 support level and although the pair held its ground relatively well the downward pressure may resume with 2950 the next target of shorts while 1.3125 caps the upside for now.

5. USD/JPY – U.S. Durable Goods

Durable Goods expected @ -3% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Durable Goods rise by 2% or more = Buy USD/JPY
If Durable Goods fall by 5.5% or more = Sell USD/JPY

U.S. durable goods orders are due for release tomorrow and it generally does not have a meaningful impact on USD/JPY unless there is a big surprise. Therefore the data should only be traded reactively. If durable goods rise by 2% or more, we expect USD/JPY to rally. If durable goods fall by 5.5% or more, we expect USD/JPY to sell-off. REACTIVE TRADE


Recovery back into 99.00 bodes well for upside
Break into 99.50-100.00 corridor puts 100.00 in view
98.50 supports

USD/JPY recovery back into the 99.00 zone suggests that the bid may be back in the pair and its move into the 99.50 corridor would put 100.00 back in view.

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