Top 5 – 07.22.13

TOP 5 HOT IDEAS

DATE: Monday July 22, 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. USD/JPY – Japanese Convenience Store Sales



FUNDAMENTALS
Japanese Convenience Store Sales expected @ (3AM ET / 7 GMT)
Our View – Neutral
Reason – Neutral
If Convenience Store Sales Decline by more than -2% = Buy USD/JPY
If Convenience Store Sales Decline by less than -0.5% = Sell USD/JPY

Japanese Convenience Store Sales is not a huge market mover for the Japanese Yen unless there is a big surprise but the data should show some strength as the economy continues to improve. Nonetheless it is best traded reactively. If sales decline by more than 2% year over year, USD/JPY could extend higher. If sales decline by less than 0.5%, USD/JPY could resume its slide. REACTIVE TRADE
TECHNICALS

100.00 holds
101.50 next target of longs
Break there opens run to yearly highs

The uptrend recovery in USD/JPY continues with longs now eying the key 101.50 level while 100.00 provides new support. A break above 101.50 opens run to yearly highs

2. USD/MXN – Mexico Retail Sales



FUNDAMENTALS
Retail ales expected @ 1% (9AM ET / 13 GMT)
Our View – Neutral
Reason -- Neutral
If Spending drops by -1% or more = Buy USD/MXN
If Spending rises by 3% or more = Sell USD/MXN

Mexico’s retail sales report is an important one for USD/MXN but the data is difficult to handicap and therefore best traded reactively. If retail sales drops by 1% or more USD/MXN can be bought for a move higher. If spending rises by 3% or more, USD/MXN can be sold. REACTIVE TRADE

TECHNICALS

12.500 key support
Downtrend in place
Break opens run to 12.000

The downtrend in USD/MXN remains in place with 12.500 now key support to hold while a break lower could open a run to 12.000

3. EUR/USD – US Existing Home Sales

FUNDAMENTALS
Existing Home Sales expected @ 1.4% (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Neutral
If Existing Home Sales drop by 1% or more = Buy EUR/USD
If Existing Home Sales rise by 5% or more = Sell EUR/USD

According to the Federal Reserve’s Beige Book report, the housing market continues to recover but existing home sales is difficult to handicap and therefore best traded reactively. If existing home sales drop by 1% or more, the EUR/USD should rally. If Existing Home Sales rise by 5% or more, the EUR/USD should fall. REACTIVE TRADE

TECHNICALS

3200 remains tough resistnace
3100 continues to hold
3000-3200 range dominates

The euro is now trapped in a 3200-3000 range as the upside still caps the move. A break above 1.3225 would open a run towards 1.3400 while 1.3000 provides support

4. USD/CAD and Oil

FUNDAMENTALS

With no additional economic reports on the calendar, we want to take this opportunity to highlight the relationship between USD/CAD and oil. In the chart shown above, the green line is USD/CAD, the white line is the price of crude oil and it should be clear that these 2 instruments have an inverse relationship, because Canada benefits from a rise in oil prices. In other words, rising oil prices should coincide with a selloff in USD/CAD. However since the beginning of the month, this correlation had its limits and only in the past week or so have we seen USD/CAD start to decline as oil prices hit new 1 year high. Based on the chart above, USD/CAD may continue to correct as it catches up with the move in oil.

5. AUD/USD and Gold



FUNDAMENTALS

With a relatively quiet global economic calendar on Monday, we want to take this opportunity to highlight the recent correlation of AUD/USD and gold. In the chart shown above, the green line is the AUD/USD and the white line is the price of gold. It should be clear that these 2 instruments have positive relationship whereby higher gold prices are positive for the AUD/USD. Both instruments have been hit hard by U.S. dollar strength in the first half of the year but are now beginning to stabilize. If the price of gold exceeds 1300, an important resistance level, we could see a stronger recovery in the AUD/USD.

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