Top 5 – 05.01.2013

TOP 5 HOT IDEAS

DATE: Wednesday May 1, 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 – AU PMI Manufacturing



FUNDAMENTALS
PMI Manufacturing expected @ (7:30 PM ET / 23:30 GMT)
Our View – Neutral
Reason – Neutral
If PMI Manufacturing index exceeds 46 = Buy AUD/USD
If PMI Manufacturing Index drops below 43.5 = Sell AUD/USD

Australian manufacturing PMI numbers are scheduled for release this evening and should be a decent market mover for the AUD however with trade activity improving but business confidence declining, it’s a bit of a tough call this month. As a result, the data is probably best traded reactively. If the PMI manufacturing index exceeds 46, the AUD/USD can be bought for a move higher. If the index drops below 43.5, the AUD/USD can be sold. REACTIVE TRADE

TECHNICALS


1.0350 taken out
1.0400 still caps
1.0300 support for now

The Aussie recovery continued today with the pair finally overcoming the 1.0350 resistance but 1.0400 continues to cap the rally for now. A break above opens a run to 1.0450 while a break below 1.0350 puts 1.0300 back in play.

2. NZD/USD – Chinese PMI Manufacturing



FUNDAMENTALS
Chinese Manufacturing PMI expected @ 50.7 (9 PM ET / 1 GMT)
Our View – Bearish NZD
Reason – Weaker HSBC PMI index
If PMI index exceeds 51.5 = Buy NZD/USD
If the PMI index drops to 50.2 or lower = Sell NZD/USD

Normally when we look to trade Chinese data, we turn to the AUD/USD however the NZD/USD also tends to react to China’s economic reports because of the region’s sensitivity to Chinese growth. Based on the decline in the HSBC manufacturing PMI index, we have good reasons to believe that the government’s national release will show a pullback in manufacturing activity. As a result, we believe the data can be traded proactively or reactively. If PMI index exceeds 51.5, NZD/USD can be bought for a move higher. If the PMI index drops to 50.2 or lower, the NZD/USD can be sold as slower Chinese growth could trigger a wave of risk aversion in currencies. PROACTIVE or REACTIVE TRADE

TECHNICALS

8600 in view
8500 supports
Break above opens a re-test of recent highs

The kiwi has staged a strong rally but now finds itself against the 8600 level as the next level of resistance. A break there opens up a run at the most recent highs just below 8700.

3. USD/JPY – Japanese Labor Cash Earnings

FUNDAMENTALS
Labor Cash Earnings expected @ -1.2% (9:30 AM ET / 1:30 GMT)
Our View – Neutral
Reason – Neutral
If Labor Cash Earnings falls by 2% or more = Buy USD/JPY
If Labor Cash Earnings fall by less than -0.6% = Sell USD/JPY

Japanese labor cash earnings are 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 2% or more, we expect USD/JPY to rally. If earnings drop by -0.6% or less, USD/JPY could extend its losses. REACTIVE TRADE

TECHNICALS

97.00 holds
Making lower highs
Break of 97.00 opens up 96.50

USD/JPY found a bid at the 97.00 level but the pair has now declined four days in a row and continues to make lower lows suggesting that the correction is not over yet. A break below 97.00 opens up a run towards 96.00 and a retest of recent lows.

4. GBP/USD – PMI Manufacturing

FUNDAMENTALS
PMI Manufacturing @ 48.5 (4:30 AM ET / 8:30 GMT)
Our View – Bearish GBP
Reason – Sharp Drop in CBI
If the PMI index exceeds 49.5 = Buy GBP/USD
If the PMI index drops below 48 = Sell GBP/USD

U.K. PMI Manufacturing orders are scheduled for release tomorrow and we have strong reasons to believe that manufacturing conditions weakened in the month of April because a similar survey conducted by the Confederation of British Industry found orders dropping to its lowest level since October 2010. As a result, we believe the data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 49.5, the GBP/USD can be bought for a move higher. If the PMI index drops below 48, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.5550 fails to hold again
1.5500 near term support
1.5450 deeper support

Cable’s rally continued but once again it failed to hold the 1.5550 breakout level and the upmove looks like its running out of steam. A break above 1.5600 opens a run to 1.5700 highs while a break below 1.5500 tests the stronger support at 1.5450.

5. USD/JPY – ISM Manufacturing



FUNDAMENTALS
ISM Manufacturing expected @ 50.6 (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Neutral
If ISM Manufacturing exceeds 52 = Buy USD/JPY
If ISM Manufacturing drops below 50 = Sell USD/JPY

We have strong reasons to believe that the ISM manufacturing index will show manufacturing activity slowing across the nation. Regional indices including the Philly Fed survey, Chicago PMI and Empire state all reported weaker manufacturing conditions. As a result, we believe that the ISM can be traded proactively or reactively. For those who choose to wait, if the ISM manufacturing index exceeds 52, USD/JPY can be bought for a move higher. If the index drops below 50, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

97.00 holds
Making lower highs
Break of 97.00 opens up 96.50

USD/JPY found a bid at the 97.00 level but the pair has now declined four days in a row and continues to make lower lows suggesting that the correction is not over yet. A break below 97.00 opens up a run towards 96.00 and a retest of recent lows.

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