Top 5 – 06.19.13

TOP 5 HOT IDEAS

DATE: Wednesday June 19, 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. NZD/USD – New Zealand Current Account





FUNDAMENTALS
Q1 Current Account expected @ (6:45 PM ET / 20:45 GMT)
Our View – Bullish AUD
Reason – Trade Balance Improved in Q1
If CA Balance is flat or positive = Buy NZD/USD
If CA Balance exceeds -3B = Sell NZD/USD

We have good reasons to believe that New Zealand current account numbers will surprise to the upside because the 2 most important components of current account are trade and investment flows and trade in New Zealand improved in the first 3 months of the year. We don’t have any data on New Zealand investment flows but the NZD was firm during this time. Therefore we feel that the data can be traded proactively or reactively. For those who choose to wait, if New Zealand’s current account deficit is flat or turns into a surplus, the NZD/USD can be bought for a move higher. If the current account deficit exceeds -3B, the NZD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS


The 81 level continues to be stiff resistance for the NZD/USD. The reason why it is so important is because it is the 38.2% of the Fibonacci retracement drawn from the April high to June low. When the NZD/USD finally takes out that level, the next resistance should be at 0.82175, the 50% Fibonacci retracement of the same move. On the downside, if the NZD/USD continues lower, it should find support at the June 5th low of 79 cents and below that the June 10th swing low of 0.7750.

2. AUD/USD – Westpac Leading Indicators



FUNDAMENTALS
Leading Index expected @ (8:30 PM ET / 0:30 GMT)
Our View – Neutral
Reason – Neutral
If Leading Indicators exceed 0.5% = Buy AUD/USD
If Leading Indicators fall by -0.1% or more = Sell AUD/USD

Australian leading indicators are scheduled for release tonight and the data is not expected to have a significant impact on the AUD unless there is a big surprise. The data is also difficult to handicap and therefore best traded reactively. If leading indicators exceed 0.5%, the AUD/USD can be bought for a move higher. If leading indicators fall by -0.1% or more, the AUD/USD can be sold. REACTIVE TRADE

TECHNICALS


The AUD/USD extended its losses below 95 cents and now the June low of 0.9324 is support. If the currency breaks that level, the sell-off could gain momentum towards 0.9150, the 38.2% Fibonacci retracement of the 2008 to 2011 rally. If the AUD/USD starts to recover, it should find resistance at June 13th high of 0.9665. Should that level be broken then second resistance will be June 2nd high of 0.9790.

3. USD/JPY – Japanese Trade Balance

FUNDAMENTALS
Japanese Trade expected @ -1.22 Trillion (7:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Japanese Trade Deficit exceeds –Y1.3 trillion = Buy USD/JPY
If Japanese Trade Deficit is -Y700B or less = Sell USD/JPY

Trade activity is very important to Japan but less so for its currency. We expect the deficit to widen because of the recent strength in the Yen. Nonetheless, the data is best traded reactively. If the Japanese trade deficit exceeds –Y1.3 trillion, USD/JPY can be bought for a move higher. If the deficit narrows to –Y700B or smaller, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS


USD/JPY remains in a downtrend and appears poised for a retest of its June low of 93.77. If this level is broken, then the next support should be at the April 1st low of 92.55. If USD/JPY finally manages to muster some upside momentum, the rally could meet resistance at the 100-day SMA of 97 which is also a round number and psychologically significant level. Should that level be broken then the next resistance will be at the 50-day SMA at 99.15.

4. USD/CAD – Wholesale Sales




FUNDAMENTALS
Wholesale sales expected @ 0.3% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Canadian wholesale sales drops by -0.1% or more = Buy USD/CAD
If Canadian wholesale sales exceed 0.6% = Sell USD/CAD

Canadian wholesale sales are not a huge market mover for the Canadian dollar unless there is a big surprise. Therefore the data can only be traded reactively. If Canadian wholesale sales drop by 0.1% or more, USD/CAD can be bought for a move higher. If sales exceed 0.6%, USD/CAD can be sold. REACTIVE TRADE

TECHNICALS


Higher highs and higher lows is indicative of a potential bottom in USD/CAD. If the currency pair continues to climb, it may find resistance at the June 10th high of 1.0250. If that level be broken then the next resistance should be at 1.0300, a psychologically significant number. If USD/CAD fails to sustain its gains, there is support at the June 13th low of 1.01362. Should that level be broken then the next support will be May 9th low of 1.0019.

5. EUR/USD – Bernanke Press Conference



FUNDAMENTALS
FOMC Rate Decision expected @ 0.2% (2:30 PM ET / 18:30 GMT)
Our View – Neutral
Reason – Neutral
If Bernanke sets expectations for Fed tapering in a few months = Buy USD/JPY
If Bernanke deemphasizes tapering = Sell USD/JPY

Wednesday’s FOMC rate decision is a high level event risk. While we think that the outcome will most likely be dollar bearish, we feel that it is best to wait for Bernanke’s press conference at 2:30pm ET to pass before taking a trade because the currency pair can experience heightened volatility. If Bernanke sets expectations for Fed tightening in a few months, USD/JPY could extend its gains quickly. If he deemphasizes tapering and focuses on distinguishing that from tightening, USD/JPY could give up its gains quickly. REACTIVE TRADE

TECHNICALS


The EUR/USD continues to extend higher and is currently hovering near resistance at 1.34, a level that the pair has struggled to break in the past. Above there, the next level of resistance will be at the February 12th swing high of 1.3518. Should that level be broken then second resistance will be at February 1st high of 1.3710. On the downside, if the EUR/USD loses momentum, support should come in at the June 9th low of 1.31764. Should that level be broken then the next support will be at 1.3100, the 100-day SMA.

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