Top 5 – 05.22.2013

TOP 5 HOT IDEAS

DATE: Wednesday May 22, 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 Trade Numbers



FUNDAMENTALS
Trade Balance expected @ (7:50 PM ET /23:50 GMT)
Our View – Neutral
Reason – Neutral
If Trade Deficit is larger than –Y700B = Buy USD/JPY
If Trade Deficit is less than –Y300 B = Sell USD/JPY

Japanese trade numbers are scheduled for release this evening and while the data is an important measure of how Japan’s economy is performing, it may not be a major market mover for USD/JPY unless there is a big surprise. As a result, we believe the trade numbers are best traded reactively. If the trade deficit is larger than –Y700B, USD/JPY can be bought for a move higher. If the deficit is less than –Y300B, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

103.00 still caps
102.00 remains support
Break of range likely

For the second day in a row USD/JPY is carving out a very tight 102.00-103.00 range as both buyers and seller seem to be in equilibrium. Such tight vol is unlikely to last and a break above 103.30 or 101.90 could signal the next directional move.

2. EUR/USD – Eurozone Current Account



FUNDAMENTALS
Eurozone Current Account expected @ (4 AM ET / 8 GMT)
Our View – Bullish EUR
Reason – Stronger German and French CA
If Current Account balance exceeds 17B = Buy EUR/USD
If Current Account Balance is less than 14B = Sell EUR/USD

We have strong reasons to believe that the Eurozone’s current account balance improved in the month of March. Whenever we look to handicap EZ data, we always turn to the releases of the 2 largest economies in the region – Germany and France. In this case, both countries report improvements in their current account balances, which is why we believe the data can be traded proactively or reactively. For those who choose to wait, if the Eurozone’s current account balance exceeds 17B, the EUR/USD can be bought for a move higher. If the current account balance is less than 14B, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

Continues to hold 2800-2950 range
2950-3000 will prove tough resistance
2750 key support to downside

The EUR/USD continues to churn in a 2800-2950 range with what appears to be a slight upward bias as the lows are starting to become higher on 4H charts. Still the pair is basically contained in a range with no direction until the edges are broken.

3. GBP/USD – BoE Minutes and Retail Sales

FUNDAMENTALS
Bank of England Minutes & Retail Sales expected @ 0.1% (4:30 AM ET / 8:30 GMT)
Our View – Neutral
Reason – Neutral
If BoE Minutes are less dovish and retail sales exceed 0.3% = Buy GBP/USD
If BoE Minutes remain dovish and retail sales drop by -0.1% or more = Sell GBP/USD

Between the BoE minutes and the U.K.’s retail sales report, it should be an active morning for the GBP/USD. Unfortunately these event risks are difficult to trade proactively because of their potentially conflicting results. According to CPI, BRC shop prices and BRC retail sales report, the odds favor weaker consumer spending growth. However the last BoE meeting was held under the backdrop of improving manufacturing, service and construction activity and should therefore be less dovish. As a result, tomorrow’s U.K. economic reports are best traded reactively. If BoE Minutes are less dovish and retail sales exceed 0.3%, the GBP/USD can be bought for a move higher. If BoE Minutes remain dovish and retail sales drop by -0.1% or more, the GBP/USD can be sold.
REACTIVE TRADE

TECHNICALS

5150 tested
5100 holds for now
Bias still down only 5300 puts tone to neutral

Cable probed further into the lows today finding support just ahead of the 1.5100 mark. The bias in the pair remains down with a break of 1.5100 opening up the prospect of a move towards 1.5000. 1.5300 turns bias back to neutral.

4. USD/CAD – Retail Sales




FUNDAMENTALS
Retail Sales expected @ 0.1% (8:30 AM ET / 12:30 GMT)
Our View – Bullish CAD
Reason – Increase in wholesale sales and employment
If Retail Sales fall by -0.1% or more = Buy USD/CAD
If Retail Sales rise by 0.4% or more = Sell USD/CAD

We have strong reasons to believe that Canadian retail sales will increase because wholesales sales and job growth improved in the month of March. Therefore Canada’s consumer spending report can be traded proactively or reactively. If retail sales fall by -0.1% or more, USD/CAD can be bought for a move higher. If retail sales rise by 0.4% or more, USD/CAD be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.0300 tested and rejected
1.0250 support
Break above 1.0350 opens run to 1.0400

The loonies failure to hold 1.0300 suggests the pair may have reached an near term top, but a break above 1.0350 would open a run to 1.0400 and fresh multi-month highs

5. USD/JPY – Bernanke’s Speech



FUNDAMENTALS
Bernanke Testimony expected @ (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Neutral
If Bernanke confirms that tapering asset purchases is on the table = Buy USD/JPY
If Bernanke expresses more caution than optimism = Sell USD/JPY

Bernanke’s testimony on the economic outlook is the most important event risk on Wednesday. Figuring out what he will say is difficult but his words should have a lasting impact on the USD. It should therefore only be traded reactively. If Bernanke confirms that tapering asset purchases is on the table, USD/JPY can be bought for a move higher. If Bernanke expresses more caution than optimism, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

103.00 still caps
102.00 remains support
Break of range likely

For the second day in a row USD/JPY is carving out a very tight 102.00-103.00 range as both buyers and seller seem to be in equilibrium. Such tight vol is unlikely to last and a break above 103.30 or 101.90 could signal the next directional move.

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