Top 5 – 07.29.13

TOP 5 HOT IDEAS

DATE: Monday July 29, 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 – Chinese Industrial Profits

FUNDAMENTALS
Chinese Industrial Profits released @ (9:30 PM ET / 1:30 GMT)
Our View – Neutral
Reason – Neutral
Profits at 11.1% vs. 12.3%

Chinese industrial profits were released on Saturday and the data shows profit growth slowing in the month of June. Unfortunately this pullback is consistent with the overall weakness experienced by China’s economy and could weigh on the AUD in Sunday trade. Since the data has already been released, the only opportunity is to trade it reactively. The change isn’t large so the AUD/USD may only see a small decline when the markets reopen for Sunday trade. REACTIVE TRADE

TECHNICALS

9300 continues to cap
9335 key upside break
9200 supports

The Aussie continues to consolidate with 9200 holding support but 9300 still capping any upside action. 9335 is the key upside break for any move higher.

2. USD/JPY – Japanese Retail Sales



FUNDAMENTALS
Japanese Retail Sales expected @ 0.8% (7:50 PM AM ET / 23:50 GMT)
Our View – Bullish JPY
Reason – Looking for continued improvements in Japanese data
If Retail Sales rises by 0% or declines = Buy USD/JPY
If Retail Sales rise by 2% or more = Sell USD/JPY

We have good reasons to believe that Japan’s retail sales report will show continued improvement in Japan’s economy. The cabinet office upgraded its assessment for the third month in a row last week. Therefore we feel Japan’s retail sales report can be traded proactively or reactively, though a big surprise is probably needed to move the pair. For those who choose to wait, if Japanese retail sales growth is flat or declines, USD/JPY can be bought for a move higher. If retail sales rise by 2% or more, USD/JPY can be sold for a potential extension lower. PROACTIVE or REACTIVE TRADE

TECHNICALS

98.00 tested
Break there opens up move to 96.00
99.00-100.00 now resistance

USD/JPY is now barely holding on to the 98.00 level and any break below could open a run to 96.00 while 99.00-100.00 now becomes resistance.

3. GBP/USD – U.K. Mortgage Approvals

FUNDAMENTALS
Mortgage Approvals expected @ 59.7 (4:30 AM ET / 9:30 GMT)
Our View – Neutral
Reason – Neutral
If Mortgage Approvals exceed 65K = Buy GBP/USD
If Mortgage Approvals are less than 50K = Sell GBP/USD

A number of U.K. housing market reports are due for release tomorrow and we believe the most important of which will be mortgage approvals. While the real estate market is holding strong in London, the rest of the country has not benefitted as much from low interest rates or the government’s funding for lending program. Mortgage approvals are not a huge market mover for the GBP/USD, unless there is a big surprise. Therefore, the data is probably best traded reactively. If mortgage approvals exceed 65K, we expect the GBP/USD to rise. If approvals fall to 50K or lower, we expect the GBP/USD to fall REACTIVE TRADE

TECHNICALS

5400 stalls upside
5200 still support
Upside bias remains

The upside bias in cable remains in place but the pair is stalling at the 5400 level while 5200 remains the near term support.

4. USD/JPY – Pending Home Sales

FUNDAMENTALS
Pending Home Sales expected @ -1.2% (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Neutral
If Pending Home Sales grow by 6% or more = Buy USD/JPY
If Pending Home sales drop by -3% or more = Sell USD/JPY

Pending home sales is difficult to handicap especially since existing home sales increased and new home sales declined last month. Therefore we feel that it is best traded reactively. If Pending home sales grow by 6% or more, USD/JPY can be bought for a move higher. If Pending home sales drop by -3% or more, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

98.00 tested
Break there opens up move to 96.00
99.00-100.00 now resistance

USD/JPY is now barely holding on to the 98.00 level and any break below could open a run to 96.00 while 99.00-100.00 now becomes resistance.

5. EUR/USD and S&P500



FUNDAMENTALS

Due to the lack of market moving data on Monday, we want to take this opportunity to highlight the relationship between the EUR/USD and U.S. stocks. Over the past 10 years, the EUR/USD took its cue from stocks or the market’s overall risk appetite often. However there have been times when this relationship has broken and this past year is a good example. The chart above shows that between May and the early part of July, the EUR/USD weakened as stocks soared. This breakdown and similar breakdowns in the past were caused by Eurozone specific troubles. Yet last week as the S&P 500 climbed to fresh record highs, the EUR/USD resumed its rise, leading many investors to wonder if the relationship is back. As long as there aren’t any Euro centric troubles it could be possible but with the ECB meeting this week and the possibility that they will reinforce the central bank’s dovish bias, the correlation is at risk.

TECHNICALS

3250 taken out
3300 now in view
3400 next resistance

EUR/USD broke out with conviction taking out the 3250 level with conviction. 3300 now comes into view and the pair now target the swing highs at 3400.

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