Top 5 – 06.27.2013

TOP 5 HOT IDEAS

DATE: Thursday June 27, 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 Trade Balance



FUNDAMENTALS
New Zealand Trade expected @ 427M (6:45 PM ET / 22:45 GMT)
Our View – Bullish NZD
Reason – Rise in Business PMI Index
If NZ Trade Surplus exceeds 500M = Buy NZD/USD
If NZ Trade Surplus is less than 200M = Sell NZD/USD

We have good reasons to believe that New Zealand’s trade surplus will surprise to the upside. While economists are already looking for a lofty reading, the increase in the business PMI index points to stronger trade activity. Therefore the data can be traded proactively or reactively. For those who choose to wait, if New Zealand’s trade surplus exceeds 500M, the NZD/USD can be bought for a move higher. If the trade surplus rises to 200M or less, the NZD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

7850 fails
7700 retest possible
Break of 7850 opens up run to 8000

The fizzled out rally in kiwi bodes badly for the pair as it leaves a nasty wick at the 7850 level and suggests that the rejection may embolden the shorts to press for a retest of 7700.

2. 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 Y100B worth of foreign bonds= Buy USD/JPY
If Japan Sells more than –Y100B worth of foreign bonds = Sell USD/JPY

In order for USD/JPY to extend higher, Japanese investors need to buy foreign bonds. The Ministry of Finance’s weekly report on Japanese investments will be released this evening and the outcome could have a meaningful impact on USD/JPY. Unfortunately it is difficult to handicap and therefore best traded reactively. If Japanese investors buy more than Y100B worth of foreign bonds, USD/JPY can be bought for a move higher. If they sell –Y100B worth of foreign bonds or more, USD/JPY can be sold REACTIVE TRADE

TECHNICALS


97.00 continues to hold
Late day recovery positive
98.00 next challenge for longs

The impressive late day recovery for longs after 97.00 held again suggests that USD/JPY is building a base near the 97.00 level and could now make a run through the 98.00 figure.

3. AUD/USD – Chinese Industrial Profits

FUNDAMENTALS
Chinese Industrial Profits expected @ (9:30 PM ET / 1:30 GMT)
Our View – Neutral
Reason – Neutral
If Profits Exceed 15.0% = Long AUD/USD
If Profits Grow by Less than 5% = Sell AUD/USD

Chinese economic data is notoriously difficult to predict but can oftentimes be very market moving especially for the AUD/USD. Chinese industrial profits have been slowly grinding higher and if growth suddenly slows, it could be extremely negative for the AUD/USD. In contrast if profits increase, we could see a further short squeeze in the greenback. There’s no opportunity to trade this data proactively and even if there was it probably wouldn’t be the best option because Chinese data is difficult to predict. – REACTIVE TRADE

TECHNICALS

9300 still cant hold
9200 key support
A break opens up retest of lows

Despite better bid tone over the past few days, Aussie still cannot hold the 9300 level and today’s failure now opens up the prospect of retest of lows especially if the 9200 figure is given

4. EUR/USD – German Unemployment



FUNDAMENTALS
German Unemployment expected @ 8K (3:55 AM ET / 7:55 GMT)
Our View – Bearish EUR
Reason – Employment component of PMIs declined
If unemployment rolls rise by 2K or less = Buy EUR/USD
If unemployment rolls rise by 15K or more = Sell EUR/USD

We have strong reasons to believe that German labor market conditions deteriorated in the month of June because the employment component of the latest PMI report declined. The data can therefore be traded proactively or reactively. If German unemployment rolls rise by 2K or less, we expect the EUR/USD to rise. If unemployment rolls rise by 15K or more, we expect the EUR/USD to decline. PROACTIVE or REACTIVE TRADE

TECHNICALS

2950-3000 corridor key support
3050 now new resistance
Break of 2950 opens up a retest of recent lows

The downdraft in EURUSD has continued but so far the 2950-3000 corridor is holding. A break there opens up the possibility of a retest of recent lows while 3050 now becomes the new resistance.

5. USD/JPY – Personal Income and Personal Spending



FUNDAMENTALS
Personal Income expected @ 0.2% & Personal Spending expected @ 0.3% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Average hourly earnings flat but retail sales increased
If Personal Income AND Spending exceeds 0.5% = Buy USD/JPY
If Personal Income AND Spending grows by 0% or less = Sell USD/JPY

This month’s personal income and spending numbers are difficult to handicap because average hourly earnings were flat, pointing to a weaker release while retail sales were stronger, pointing to an increase in spending. We need consistently positive data to rally USD/JPY. As a result, the data should only be traded reactively. For those who choose to wait, if personal income and spending exceeds 0.5%, USD/JPY can be bought for a recovery trade higher. If personal spending and income grows by less than 0.0%, USD/JPY can be sold. REACTIVE TRADE
TECHNICALS


97.00 continues to hold
Late day recovery positive
98.00 next challenge for longs

The impressive late day recovery for longs after 97.00 held again suggests that USD/JPY is building a base near the 97.00 level and could now make a run through the 98.00 figure.

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