Top 5 – 07.25.13

TOP 5 HOT IDEAS

DATE: Thursday July 25, 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 Purchases of Foreign Bonds



FUNDAMENTALS
MoF Data on Japan Buying Foreign Bonds expected @ 1105.7B (7:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Purchases exceed 100B = Buy USD/JPY
If Purchases are -100B or lower = Sell USD/JPY

An essential criteria for a resumption of the USD/JPY rally is Japanese purchases of foreign bonds. Last week’s report showed the second week of net purchases of foreign bonds since May. While this data has become very important it is unfortunately difficult to handicap. The only opportunity to trade this data is reactively. If the recent rise turns into a trend and sales resume, USD/JPY can be sold for a quick move lower. If the 2% U.S. yield finally draws demand from the Japanese, leading to an increase in purchases in excess of 100B, USD/JPY can be bought as investors start to see this as a renewed trend. REACTIVE TRADE

TECHNICALS

100.00 recouped
100.50 key upside break
A break opens run to 101.50

USD/JPY recovered its losses, but was stymied at 100.50 which remains a key upside break for the pair and opens the way for move towards 101.50 if taken out.

2. EUR/USD – German IFO Report



FUNDAMENTALS
German IFO expected @ 106.1 (4 AM ET / 8 GMT)
Our View – Neutral
Reason – Stronger PMI, weaker industrial production, factory orders and ZEW
If the IFO index exceeds 107 = Buy EUR/USD
If the IFO index is less than 104 = Sell EUR/USD

This month’s German IFO report is a tough call. Manufacturing activity strengthened according to the PMI report but industrial production and factory orders weakened. As such, we feel that the index is best traded reactively. If the IFO index exceeds 107, the EUR/USD can be bought for an extension higher. If the index drops below 104, it can be sold. REACTIVE TRADE

TECHNICALS

3225 broken but 3250 caps
3150-3200 now acts as support
Break above 3250 opens up runt o 3400

The euro managed to break 3225 but was capped at the 3250 level as it continues to digest its breakout. A move through 3250 opens a run to 3400 while 3150 now holds support

3. GBP/USD – UK Q2 GDP

FUNDAMENTALS
Q2 GDP expected @ 0.6% (4:30 AM ET / 8:30 GMT)
Our View – Mildly Bullish GBP
Reason – Slightly Stronger Retail Sales and Higher Trade Balance
If GDP grows by 0.8% or more = Buy GBP/USD
If GDP grows by 0.1% or less = Sell GBP/USD

The biggest event risk for GBP this week is tomorrow’s GDP report and we have good reasons to believe that U.K. GDP will surprise to the upside because retail sales and trade activity increased slightly in the second quarter. Despite the recent dovishness of the BoE, the U.K. economy is recovering gradually and therefore we feel the GDP report can be traded proactively or reactively. For those who choose to wait, if GDP growth exceeds 0.8%, the GBP/USD could be bought for an extension higher. If GDP growth is 0.1% or less, the GBP/USD can be sold for a possible corrective move lower. PROACTIVE or REACTIVE TRADE

TECHNICALS

5400 caps move
5300 now support
Some consolidation likely

Cable ran out of gas the the 5400 level and may now have to consolidate at the 5300 level as it digests its breakout move.

4. USD/JPY – US Durable Goods

FUNDAMENTALS
Durable Goods expected 1.4% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Durable Goods orders rises by 3.5% or more = Buy USD/JPY
If Durable Goods orders rises by 0.5% or less = Sell USD/JPY

Durable goods orders are notoriously volatile and difficult to trade. So the only opportunity we see is to trade the data reactively. If durable goods orders rise by 3.5% or more, USD/JPY can be bought for a move higher. If orders rise by 0.5% or less, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

100.00 recouped
100.50 key upside break
A break opens run to 101.50

USD/JPY recovered its losses, but was stymied at 100.50 which remains a key upside break for the pair and opens the way for move towards 101.50 if taken out.

5. USD/CAD – Average Weekly Earnings



FUNDAMENTALS
Average Weekly Earnings expected @ (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Average Weekly Earnings grows by less than 1.5% = Buy USD/CAD
If Average Weekly Earnings grows by 3.5% or more = Sell USD/CAD

Canada’s average weekly earnings report is not a huge market mover for the Canadian dollar unless there is a large surprise. Therefore we feel that the data is best traded reactively. If earnings grow by less than 1.5%, USD/CAD can be bought for a move higher. If earnings growth exceeds 3.5%, USD/CAD can be sold. REACTIVE TRADE

TECHNICALS

Break of 1.0300 lead to more downside
1.0250 caps move
1.0350 now topside resistance

USD/CAD break of 1.0300 led to further downside action, but the pair was held back ahead of the 1.0250 level and is now consolidating its move with 1.0350 now resistance.

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