Top 5 – 05.06.13

TOP 5 HOT IDEAS

DATE: Monday May 6, 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 – Retail Sales



FUNDAMENTALS
Retail Sales expected @ (9:30 PM ET / 1:30 GMT)
Our View – Bearish AUD
Reason – Sharp Decline in Sales Component of PMI Services
If Retail Sales rise by 0.6% or more = Buy AUD/USD
If Retail Sales drop by -0.1% or more = Sell AUD/USD

We have strong reasons to believe that Australian retail sales will fall short of expectations. Not only has there been broad based weakness in Aussie data but the sales component of the services PMI index dropped steeply, signaling softer consumer demand. AUD retail sales can therefore be traded proactively or reactively in our opinion. For those who choose to wait, if retail sales rise by 0.6% or more, the AUD/USD can be bought for an extension move higher. However if it drops by 0.1% or more, the AUD/USD can be sold for a reversal ahead of the RBA rate decision. PROACTIVE or REACTIVE TRADE

TECHNICALS


1.0300 retaken
1.0350 still caps
Downside pressure relieved

The Aussie selloff ha ended for now with the pair forming a near term double bottom at the 1.0225 level and recapturing the 1.0300 level. Still 1.0350 is formidable resistance that may be much harder to overcome.

2. NZD/USD – China’s HSBC Services PMI



FUNDAMENTALS
HSBC Services PMI @ (9:45 PM ET / 1:45 GMT)
Our View – Neutral
Reason – Neutral
If PMI index exceeds 56 = Buy NZD/USD
If the PMI index drops to 52 or lower = Sell NZD/USD

Chinese economic data is notoriously difficult to handicap and HSBC’s PMI services report is no exception. Based on other Chinese data, the economy is slowing gradually 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 56, the NZD/USD can be bought for a move higher. If the PMI index drops to 52 or lower, the NZD/USD can be sold. REACTIVE TRADE

TECHNICALS

8550 caps the rally for now
8500 new area of support
8600 next target of longs

The recovery in the kiwi continues with the rally extending to 8550 where its has stalled for the time being. 8500 now becomes the new support while 8600 is the next target of the longs on any further burst in momentum.

3. EUR/USD – Eurozone Retail Sales

FUNDAMENTALS
Retail Sales expected @ -0.1% (5 AM ET / 9 GMT)
Our View – Bullish EUR
Reason – Stronger German and French Spending
If Retail Sales rise by 0.1% or more = Buy EUR/USD
If Retail Sales drop by -0.3% or more = Sell EUR/USD

We have good reasons to believe that Eurozone retail sales increased in March. Whenever we look to handicap EZ data we always turn to the reports of the region’s 2 largest economies – Germany and France and both countries reported a rebound in consumer spending. Therefore we believe the data can be traded proactively or reactively. For those who choose to wait, if retail sales grow by 0.1% or more, the EUR/USD can be bought for a quick move higher. If retail sales contract by -0.3% or more, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

3050 continues to hold
3150 caps upside
3000-3200 trading range remains

Once again the euro found support at the 1.3050 level and once again it ran out of gas at 1.3150. The pair remains in long term range of 3000-3200 for the time being. The lower highs however continue to hint at underlying weakness.

4. USD/CAD – Canadian IVEY PMI

FUNDAMENTALS
IVEY PMI expected @ 58 (10 AM ET / 15 GMT)
Our View – Bearish CAD
Reason – Flat Wholesale sales
If the PMI index drops below 56 = Buy USD/CAD
If the PMI index exceeds 62 = Sell USD/CAD

We have good reasons to believe that Eurozone producer prices declined in March. Whenever we look to handicap EZ data we always turn to the reports of the region’s 2 largest economies – Germany and France. Prices declined in both countries during the month of March. Therefore we believe the data can be traded proactively or reactively. For those who choose to wait, if PPI grows by 0.2% or more, the EUR/USD can be bought for a quick move higher. If PPI contracts by -0.5% or more, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.0050 continues to contain the downside
1.0150 cap on the upside
Higher lows suggest may have bottomed out

USD/CAD spiked to 1.0125 but the 1.0150 level capped the rally. The pair is now showing higher lows on the intra-day charts which suggest that it may have bottomed out for the time being.

5. USD/JPY Rally Set to Continue?



FUNDAMENTALS

There is no U.S. data scheduled for release on Monday but with USD/JPY ending last week at 99, many traders are wondering if the currency pair will break 100 in the coming week. There’s not much in the way of economic data – jobless claims is the most important U.S. release on the calendar and Japan is closed on Monday so a run to 100 would only be supported by a continuation in risk appetite – which may not be enough. There are a bunch of Federal Reserve Presidents speaking so that may help USD/JPY but once again, we would be very surprised if USD/JPY broke 100 with no major fundamental catalyst.

TECHNICALS

Holds 99.00 on close
98.50 key support for longs
Break above 99.50 puts 100.00 in play

USD/JPY rebounded to 99.00 after multiple tests of 97.00 level and if it can trade through the 99.50 level, the run to 100.00 will come back in view. Meanwhile 98.50 provides near term support.

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