Top 5 – 07.17.13


DATE: Wednesday July 17, 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 – Westpac Leading Index

Leading Index expected @ (8:30 PM ET / 0:30 GMT)
Our View – Neutral
Reason – Neutral
If Leading Indicators exceed 0.9% = Buy AUD/USD
If Leading Indicators rise by 0.3% or less = 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 0.9%, the AUD/USD can be bought for a move higher. If leading indicators rise by 0.3% or less, the AUD/USD can be sold. REACTIVE TRADE


Rebound continues
9200 now support
9350 key resistance

The rebound in Aussie continues with 9250 now breached but the pair still faces resistance at the 9300-9350 level.

2. GBP/USD – BoE Minutes

BoE Minutes expected @ (4:30 AM ET / 8:30 GMT)
Our View – Dovish GBP
Reason – Carney Likely to be Dovish
If Carney votes to keep policy steady = Buy GBP/USD
If Carney votes for more stimulus = Sell GBP/USD

Between the BoE minutes and UK employment numbers, we believe the minutes will have the larger impact on the GBP/USD. New Bank of England Governor Mark Carney has made transparency a priority for the central bank and the minutes will give us a better sense of his overall degree of dovishness. We will be watching the tally of votes. Former BoE Governor voted in favor of more asset purchases at his final meeting and if Carney takes over King’s spot voting in favor of more stimulus, the GBP/USD could be sold for a move lower. If he votes for steady policy however, the GBP/USD can be bought. We feel that this event risk can be traded proactively or reactively. PROACTIVE or REACTIVE TRADE


5250 still caps upside
5000 support
Range persists

Cable remains in a tight range with 5200 capping upside action while 5000 supports but the pair continues to be trapped in a tight box for now.

3. EUR/USD – Bernanke Testimony

Bernanke Testimony expected @ (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Housing Starts AND Building Permits grow by 5% or more = Buy USD/JPY
If Housing Starts AND Building Permits fall by 1% or more = Sell USD/JPY

Bernanke’s semiannual testimony on the economy and monetary policy is the most important event risk this week. While we don’t expect Bernanke to say anything dramatically different from last week, speeches by policymakers are organic and under tough grilling from Congress, Bernanke could reveal more than he otherwise wanted. We feel the highest probability scenario is cdovishness from Bernanke. We need to appreciate the audience that Bernanke will be speaking to tomorrow – members of Congress, most of whom will be screaming at him about the lack of stronger growth. Considering that the Fed is talking about tapering asset purchases, Bernanke will need to reassure policymakers that reducing asset purchases will not send the U.S. economy into a downward spiral and to do so he will stress that monetary policy remains extremely accommodative and rate hikes are a long ways away. Dovish comments should compound near term losses in the greenback and could provide an opportunity for a stronger rally in the EUR/USD. Given the significance of Bernanke’s testimony, we feel that it should be traded reactively. If Bernanke is surprisingly optimistic, the EUR/USD could be sold for a potential reversal lower. REACTIVE TRADE


3100 take out
3000 now key support
3200 next target of longs

The euro barreled through the 3100 level opening further upside potential as longs view the 3200 and 3250 levels next.

4. USD/JPY – Housing Starts and Building Permits

Housing Starts expected @ 5% & Building Permits expected @ 1.5% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Housing Starts AND Building Permits grow by 5% or more = Buy USD/JPY
If Housing Starts AND Building Permits fall by 1% or more = Sell USD/JPY

U.S. Housing Starts and Building Permits are not huge market movers for the U.S. dollar but interesting nonetheless. The data should only be traded reactively and only if there is a big surprise. If Housing Starts AND Building Permits grow by 5% or more, we expect USD/JPY to rally. If Housing Starts AND Building Permits fall by 1% or more, we expect USD/JPY to weaken. REACTIVE TRADE


99.00 barely holds
Weakness persists
Break of 98.00 puts downside bias in play

The USD/JPY reversal off the 100 failure continued for second day and a break below 98.00 would put the pair into a downward bias with long term target of 96.00

5. USD/CAD – Bank of Canada Rate Decision

BoC Rate Decision expected @ (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Neutral
If BoC Statement does not mention need for some modest withdrawal = Buy USD/CAD
If BoC Statement remains unchanged, mention eventual need to withdraw stimulus = No Trade

Monetary policy announcements are important for every currency and the Canadian dollar is no exception. The BoC is not expected to change interest rates but as usual, the bias of the central bank can affect how the currency trades. This will be the first meeting led by Stephen Poloz and he is expected to repeat the BoC’s view that “the considerable monetary stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with the 2 per cent inflation target.” Any deviation from the script could cause undue volatility in the loonie. Since the last monetary policy meeting, we have seen more deterioration than improvement in Canada’s economy and if Poloz felt that the line about withdrawing stimulus is no longer necessary, USD/CAD can be sold for a move higher as this would represent renewed dovishness by the central bank. REACTIVE TRADE


1.0400 broken again
1.0300 key target of shorts
1.0500 caps upside

USD/CAD downward pressure continues with 1.0300 now in view as the pair takes out 1.0400 once again while 1.0500 caps the upside.

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