Top 5 – 08.01.13

TOP 5 HOT IDEAS

DATE: Thursday August 1, 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 – PMI Manufacturing


FUNDAMENTALS
PMI Manufacturing expected @ (7:30 PM ET / 23:30 GMT)
Our View – Neutral
Reason – Neutral
If PMI Manufacturing exceeds 51 = Buy AUD/USD
If PMI Manufacturing index is 48 or lower = Sell AUD/USD

Australia’s PMI manufacturing index is scheduled for release this evening and while slower Chinese growth gives us reason to believe that Australian manufacturing conditions deteriorated, we feel that the data is best traded reactively. If the PMI index exceeds 51, we expect the AUD/USD to rally. If the index drops to 48 or lower, we expect AUD/USD to weaken. REACTIVE TRADE

TECHNICALS

9000 gives way
8850 longer term support
9100 now caps upside

The slide in Aussie finally took out the 9000 figure but the pair found a modicum of support at the end of the day and may now stabilize a bit. 8850 is longer term support while 9100 caps the upside.

2. NZD/USD – Chinese PMI Manufacturing



FUNDAMENTALS
Chinese PMI Manufacturing expected @ 49.8 (9 PM ET / 1:30 GMT)
Our View – Bearish NZD
Reason – Decline in HSBC Flash PMI
If PMI Manufacturing exceeds 51 = Buy NZD/USD
If PMI Manufacturing index is 48 or lower = Sell NZD/USD

The decline in the HSBC Chinese PMI Manufacturing index points to a potential decline in the government’s official report, scheduled for release this evening. While the AUD/USD is generally the most receptive to Chinese data, the NZD/USD should also be affected. Given the drop in the flash PMI index, we feel that China’s PMI report can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 51, the NZD/USD can be bought for a move higher. If the PMI index drops to 48 or lower, the NZD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

7900 holds
8000 caps
Consolidation continues

The kiwi continue to back way from its recent highs near the 8100 figure with 7900 now serving as near term support.

3. GBP/USD – BoE Rate Decision

FUNDAMENTALS
BoE Rate Decision expected @ (7 AM ET / 11 GMT)
Our View – Neutral
Reason – Neutral
If the BoE statement contains more optimism = Buy GBP/USD
If the BoE statement contains more caution = Sell GBP/USD

The Bank of England’s monetary policy decision has taken increased importance with Mark Carney’s decision to release a policy statement. The central bank has signaled plans to provide increased guidance on monetary policy when their next quarterly inflation report is released and the changes that they decide to make could have a significant impact on sterling. As such, traders will be looking to this week’s BoE statement for clues on what the central bank could say/do. If the BoE statement contains more optimism, the GBP/USD can be bought for a move lower. If the statement contains more caution, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

5100 holds for now
5000 deeper support
5300 now resistance to the top

Cable has been under pressure for most of the day but was able to hold above the 1.5100 level while 5250 capped the upside move. A move lower could test support at 1.5000 while upside is capped by 1.5300-5400 zone.

4. EUR/USD – ECB Rate Decision

FUNDAMENTALS
ECB President Draghi’s Press Conference scheduled for 8:30 AM ET / 12:30 GMT
Our View – Neutral
Reason – Neutral
If Draghi sounds more optimistic about economy = Buy EUR/USD
If Draghi stresses the possibility of negative rates = Sell EUR/USD

When it comes to the ECB rate announcement, Draghi’s press conference is generally the most important part of the meeting. When they last met, the ECB talked about the possibility of negative interest rates. However there have been some data improvements and if Draghi acknowledges the improvement and talks about brighter times ahead, the EUR/USD could move higher. If he overlooks the improvements and focuses on the possibility of easier monetary policy, the EUR/USD could weaken. REACTIVE TRADE

TECHNICALS

3300 finally taken out
3400 next target of longs
3200 still supports

The euro finally took out the 1.3300 level and a push higher would target the double top at 1.3400 while 1.3200 still provides support

5. USD/JPY – US ISM Manufacturing



FUNDAMENTALS
US ISM Manufacturing Index expected @ 52 (10 AM ET / 14 GMT)
Our View – Bullish USD
Reason – Stronger Philly Fed and Empire State
If the ISM index exceeds 54 = Buy USD/JPY
If the ISM index drops to 48 or lower = Sell USD/JPY

We have strong reasons to believe that the U.S. ISM manufacturing index increased in the month of July because of improvements in the Philadelphia and Empire state surveys. As such, we feel that the data can be traded proactively or reactively. For those who choose to wait, if the ISM index exceeds 54, USD/JPY can be bought for a move higher. If the index drops to 48 or lower, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

97.50 still key support
98.50 caps upside
Break below opens run to 96.00

USD/JPY continues to drift lower as 97.50 barely holds and a break below could open a run towards the 96.00 level.

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