Top 5 – 06.07.2013

TOP 5 HOT IDEAS

DATE: Friday June 8, 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 – Australian PMI Construction



FUNDAMENTALS
PMI Construction expected @ (7:30 PM ET / 23:30 GMT)
Our View – Neutral
Reason – Neutral
If the PMI index exceeds 39 = Buy AUD/USD
If the PMI index is less than 32 = Sell AUD/USD

Australia’s PMI Construction index is not a huge market mover for the Australian dollar unless there is a big surprise so the only opportunity is to trade the report reactively. If the PMI index exceeds 39, the AUD/USD can be bought for a move higher. If the PMI index drops to 32 or less, the AUD/USD can be sold. REACTIVE TRADE

TECHNICALS

.9450 new low but bounce suggests bottom
.9700 still caps upside
Break above opens run to .9800

The Aussie stages a massive recovery today with the doji on the dailies suggesting that the pair may have put in a near term bottom. 9700 still caps but a break above opens a retest of 9800.

2. EUR/USD – German Trade Balance



FUNDAMENTALS
Trade Balance expected @ 17B (2 AM ET / 6 GMT)
Our View – Neutral
Reason – Neutral
If the trade surplus exceeds 20B = Buy EUR/USD
If the trade surplus is less 15B = Sell EUR/USD

With the PMI manufacturing index increasing but new orders and new export orders declining, this month’s German trade balance is particularly difficult to handicap and best traded reactively. If the trade surplus exceeds 20B, the EUR/USD can be bought for an extension higher. If the trade surplus is less than 15B, the EUR/USD can be sold REACTIVE TRADE

TECHNICALS

Breakout above 1.3200
1.3300 caps for now
1.3100 now support

The upward bias in the euro that we have been talking about for a few weeks manifested itself with a vengeance today with the pair taking out 1.3200 resistance. 1.3300 now caps upside while 1.3100 supports.

3. GBP/USD – UK Trade Balance

FUNDAMENTALS
UK Trade Balance expected @ -8.8B (4:30 AM ET / 8:30 GMT)
Our View – Bullish GBP
Reason – Strong PMI Manufacturing and Industrial Production
If Trade Deficit is -7.5B or better = Buy GBP/USD
If Trade Deficit is -10B or higher = Sell GBP/USD

We have strong reasons to believe that the U.K. trade deficit narrowed in the month of April. Manufacturing activity increased for the third month in a row and industrial production ticked higher which are all a reflection of stronger economic activity. Therefore we feel that the UK trade balance can be traded proactively or reactively. For those who choose to wait, if the Trade Deficit is -7.5B or better, the GBP/USD can be bought for a move higher. If the trade deficit is -10B or larger, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.5500 and 1.5600 taken out
1.5500 new support
1.5700 possible target of longs

Cable had a massive rally today taking out two key levels. 1.5500 which was former resistance now becomes support, and a extension above 1.5600 puts the 1.5700 level in play as the rally rolls on.

4. USD/CAD – Canadian Employment




FUNDAMENTALS
Canadian Employment expected @ 15K (8:30 AM ET / 12:30 GMT)
Our View – Bearish CAD
Reason – Sharp Decline in employment component of IVEY PMI
If Employment is less than 5K = Buy USD/CAD
If Employment exceeds 20K = Sell USD/CAD

We have strong reasons to believe that Canadian employment numbers could surprise to the downside. While the IVEY PMI index jumped in the month of May, the employment component of the report plunged, pointing to the possibility of slower job growth. Therefore we feel the data can be traded proactively or reactively. For those who choose to wait, if Canadian employment rises by 5K or less, USD/CAD can be bought for a resumption of the uptrend. However if Canadian employment exceeds 20K, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.0250 still containing the rally
Break of 1.0200 puts 1.0150 in sight
1.0350 still caps the upside
3000 hold key to upside trend

The loonie saw a rally against the greenback as well today, but the move was contained and 1.0250 remained a sticky support point. 1.0350 still caps upside while the loonie needs a strong break of 1.0200 to generate further downside action.

5. USD/JPY – Non-Farm Payrolls



FUNDAMENTALS
Non-Farm Payrolls expected @ 165K (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If NFPs exceed 170K = Buy USD/JPY
If NFPs is 100K or less = Sell USD/JPY

The U.S. non-farm payrolls report is a notoriously volatile piece of data to trade and for that reason alone should only be traded reactively. However this month, the divergence between the leading indicators for NFPs gives traders a stronger reason to stand down until the data is released. Jobless claims in general have been low and confidence strong. This morning, Challenger Grey & Christmas also reported a 41.2% decline in job cuts. However U.S. companies added fewer workers to their payrolls according to ADP and most importantly, job growth stagnated last month according to the ISM services report. The employment component of ISM is one of our favorite leading indicators for payrolls and the big decline suggests that payrolls could be in the tens of thousands instead of in excess of 150K. As a result, the U.S. labor market report should only be traded reactively. If payrolls exceed 170K, USD/JPY can be bought for a squeeze higher. If it is less than 100K, USD/JPY could be sold for a run to 96. REACTIVE TRADE

TECHNICALS

TECHNICALS

Massive liquidation
96.00 sees support
98.00-99.00 now caps upside

USD/JPY saw a deluge of selling but found support just underneath the 96.00 figure where the longer term support is likely to reside. 98.00-99.00 now cap the upside.

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