Top 5 – 05.23.2013

TOP 5 HOT IDEAS

DATE: Thursday May 23, 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 Purchases of Foreign Bonds



FUNDAMENTALS
Japan Buying Foreign Bonds expected @ (7:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Japan Buys more than Y185B worth of foreign bonds= Buy USD/JPY
If Japan Buys less than Y50B worth of foreign bonds = Sell USD/JPY

In order for USD/JPY to extend higher, Japanese investors need to continue to buy foreign bonds. The Ministry of Finance’s weekly report on this data will be released this evening and the outcome could have a meaningful on USD/JPY. Unfortunately it is difficult to handicap and therefore best traded reactively. If Japanese investors buy more than Y185B worth of foreign bonds, USD/JPY can be bought for a move higher. If they buy less than Y50B, USD/JPY can be sold REACTIVE TRADE

TECHNICALS

New highs but 103.00 does not hold
102.50 support
102.00 deeper support

The late day reversal in USD/JPY should give bulls pause as the pair made a new yearly high only to flame out and break below the 103.00 figure. The reversal suggest that the 103.74 high will now act a key reference point and may be a near term top as much overdue correction sets in

2. AUD/USD – Chinese HSBC Flash Manufacturing PMI



FUNDAMENTALS
HSBC Flash PMI expected @ 50.4 (9:45 PM ET / 1:45 GMT)
Our View – Neutral
Reason – Neutral
If the PMI index exceeds 51 = Buy AUD/USD
If the PMI index is less than 50 = Sell AUD/USD

Chinese manufacturing PMI numbers can have a big impact on the AUD because China is Australia’s number one trade partner. Given how aggressively the AUD/USD has fallen, the currency can be particularly sensitive to incoming data. Since Chinese economic reports are difficult to handicap, they are best traded reactively. If the PMI index exceeds 51, meaning that Chinese manufacturing activity increased in the month of May, the AUD/USD can be bought as a recovery trade. If the index drops below 50 on the other hand, it would be terrible news for the AUD and the currency can be sold for a continued move lower. REACTIVE TRADE
TECHNICALS

Break to new lows
9650 possible support
Break there opens run to 9550

The Aussie made fresh lows today as it broke the 9700 handle but the 9650 level may prove stronger support. The pair remains grossly oversold but unable to rally with 9800 now acting a key resistance.

3. EUR/USD – Eurozone Composite PMI

FUNDAMENTALS
Eurozone Composite PMI expected @ 47.2 (4 AM ET / 8 GMT)
Our View – Bullish EUR
Reason – Stronger Industrial Production and Factory Orders
If the PMI index exceeds 48 = Buy EUR/USD
If the PMI index is less than 46.5 = Sell EUR/USD

We have good reasons to believe that the Eurozone PMI index could surprise to the upside. Given the rise in equities, the slide in the euro and the rebound in industrial production and factory orders, we expect to see some improvements in the region’s economy. Therefore we feel that the data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 48, the EUR/USD can be bought for a move higher. If the index drops below 46.5, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

Back to the 2800s
2800 key support
2750 major long term support

The reversal in EURUSD continues to preserve the grinding 2800-2950 range. For now 2800 holds but even a break lower will encounter very long term support at 2750. Meanwhile 2900 caps upside.

4. GBP/USD – U.K. Q1 GDP




FUNDAMENTALS
GDP expected 0.3% (4:30 AM ET / 8:30 GMT)
Our View – Bullish GBP
Reason – Higher Retail Sales and Trade in Q1
If UK GDP rises by 0.5% or more = Buy GBP/USD
If UK GDP rises by 0.1% or less = Sell GBP/USD

We have good reasons to believe that U.K. GDP growth increased in the first quarter. The 2 most important components of GDP are retail sales and trade. In the case of the U.K. retail sales and trade both improved in the first 3 months of the year. Therefore we feel the data can be traded proactively or reactively. For those who choose to wait, if U.K. GDP growth rises by 0.5% or more, the GBP/USD can be bought. If GDP growth slows to 0.1% or less, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

5050 broken
Shorts will press test of 1.5000
Break there opens run to 1.4900

The collapse of cable continues with shorts now likely to press the key 1.5000 figure while 1.5200 caps the upside. A break below 1.5000 could see a small bounce, but the downside pressure is not relieved until 1.5200 is cleared.

5. USD/JPY – U.S. New Home Sales



FUNDAMENTALS
New Home Sales expected @ 1.9% (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Neutral
If New Home Sales rises by 3% or more = Buy USD/JPY
If New Home Sales rise by 0.5% or less = Sell USD/JPY

We have good reasons to believe that U.S. new home sales increased at a faster pace in the month of April because existing home sales also turned positive and Bernanke sounded optimistic about housing market activity. Therefore the data can be traded proactively or reactively. For those who choose to wait, if New Home Sales rises by 3% or more, USD/JPY can be bought for a move higher. If New Home Sales rise by 0.5% or less, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

New highs but 103.00 does not hold
102.50 support
102.00 deeper support

The late day reversal in USD/JPY should give bulls pause as the pair made a new yearly high only to flame out and break below the 103.00 figure. The reversal suggest that the 103.74 high will now act a key reference point and may be a near term top as much overdue correction sets in

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