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Top 5 – 06.20.13
TOP 5 HOT IDEAS
DATE: Thursday June 20, 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 – Q4 GDP
Q1 GDP expected @ 0.5% (6:45 PM ET / 20:45 GMT)
Our View – Neutral
Reason – Trade Balance Improved in Q1 but Retail Sales weakened
If GDP growth exceeds 1.6% = Buy NZD/USD
If GDP growth is 0.2% or less = Sell NZD/USD
New Zealand GDP numbers are scheduled for release this evening but the data is difficult to handicap because of the conflict between the two most important components of GDP – retail sales and trade. In the first quarter, trade activity improved but retail sales weakened. Therefore New Zealand’s GDP report is best traded reactively. If GDP growth exceeds 1.6%, the NZD/USD can be bought for a recovery trade. If GDP growth drops below 0.2% however, the NZDUSD can be sold for an extension lower. REACTIVE TRADE
The NZD/USD sold off aggressively today and the first level of support should be the June 10th low of 0.7759. If that level is broken, the next support should be around 77 cents, a round number. On the upside, there is resistance at 0.8110, 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.
2. EUR/CHF – Swiss National Bank Rate Decision
SNB Rate Decision expected @ 0.5% (3:30 AM ET / 7:30 GMT)
Our View – Neutral
Reason – Neutral
If SNB reaffirms commitment to Franc ceiling = No Trade
If SNB hardens commitment to Franc ceiling = Sell EUR/CHF
Central bank rate decisions are always important to a country’s currency particularly the Swiss National Bank and its currency policy. Interest rates in Switzerland are already zero so what investors will be looking for are the central bank’s comments on its currency. If the SNB reaffirms its commitment to its current Franc ceiling there may not be a trading opportunity but if the SNB hardens its stance, then EUR/CHF could rise quickly. As a result, we believe the SNB rate decision can only be traded reactively. REACTIVE TRADE
EUR/CHF has been trading in a tight range for the past week. There is support at the June low of 1.2221. If this level is broken, the next support will be the April low of 1.2189. If EUR/CHF extends its gains, it may find resistance at the June 3 high of 1.2428. Should that level be broken then 1.2500, a psychologically significant number will be the next point of resistance for the pair.
3. EUR/USD – Eurozone PMI
Eurozone PMI Composite expected @ 48.1 (4 AM ET / 8 GMT)
Our View – Neutral
Reason – German ZEW increased but factory orders and IP fell
If PMI exceeds 48.2 = Buy EUR/USD
If PMI is less than 47.7 = Sell EUR/USD
Tomorrow’s Eurozone PMI numbers are extremely important for the euro because it will help shape the market’s expectations for ECB policy. Unfortunately this month’s release is difficult to handicap because while the ZEW survey increased, factory orders and industrial production fell. It is therefore best traded reactively. If the PMI index exceeds 48.2, the EUR/USD can be bought for a move higher. If it drops to 47.7 or lower, the EUR/USD can be sold. REACTIVE TRADE
The EUR/USD has taken a beating today with support in the pair expected to 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. The upside in the EUR/USD continues to be capped by 1.34, a level that the pair 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 the February 1st high of 1.3710 will be the level to watch.
4. GBP/USD – UK Retail Sales
Retail Sales expected @ 0.8% (4:30 AM ET / 8:30 GMT)
Our View – Bullish GBP
Reason – Stronger Consumer Confidence and BRC Retail Sales
If Retail Sales grow by 0.9% or more = Buy GBP/USD
If Retail Sales grow by 0.2% or less = Sell GBP/CAD
We have strong reasons to believe that U.K. retail sales increased last month because consumer confidence improved and spending rose sharply according to a similar report conducted by the British Retail Consortium. As such, we believe the data can be traded proactively or reactively. For those who choose to wait, if retail sales grow by 0.9% or more, the GBP/USD can be bought for a recovery trade. However if retail sales grow by 0.2% or less, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE
GBP/USD fell sharply today and the move have stopped right above the 38.2% Fibonacci retracement of the December to March sell-off. If this level is broken then the next support will be at 1.5000 which is a psychologically significant number. On the upside, the first resistance should be at this month’s high of 1.5750. If that level be broken then the next resistance will be at January 31st high of 1.5877.
5. USD/JPY – Philadelphia Fed Survey
Philly Fed Survey expected @ -2 (10 AM ET / 14 GMT)
Our View – Bullish USD
Reason – Stronger Empire State Survey
If the Philly Fed index rises to 0 or higher = Buy USD/JPY
If the Philly Fed index falls to -6 or lower = Sell USD/JPY
A number of U.S. economic reports will be released simultaneously tomorrow morning and we feel that the Philly Fed survey will be the most market moving. After the rise in the Empire state manufacturing index, we are also looking for a recovery in Philly Fed. The data can be traded proactively or reactively. For those who choose to wait, if the Philly Fed index is flat or positive, USD/JPY can be bought for an extension higher. If the Philly Fed index falls to -6 or lower, USD/JPY can be sold. PROACTIVEor REACTIVE TRADE
USD/JPY rallied for the third consecutive trading day. We are watching for resistance at 99.15, the 50-day SMA. Should that level be broken 100 will be the level to watch followed by 101. On the downside, the June low of 93.77 is support for USD/JPY followed by the April 1st low of 92.55.