Top 5 – 08.20.13

TOP 5 HOT IDEAS

DATE: Tuesday August 20, 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 – RBA Minutes



FUNDAMENTALS
RBA Minutes expected @ (9:30 PM ET / 1:30 GMT)
Our View – Neutral
Reason -- Neutral
If RBA Minutes are neutral = Buy AUD/USD
If RBA minutes are dovish = Sell AUD/USD

The biggest event risk over the next 24 hours will be tonight’s RBA minutes. If you recall, the central bank cut interest rates by 25bp but instead of weakening, the Australian dollar traded higher. This counterintuitive price action was caused by the neutral tone of the RBA statement. The central bank failed to provide an update on their outlook for China and the mining sector, which traders interpreted to mean that the central bank is not considering additional rate cuts at the time. Tonight we will get a better sense of whether that is the RBA’s intention or if the door to additional easing remains open but their bias is difficult to handicap which is why we feel that the minutes are best traded reactively. If the RBA shifts to neutral, a short squeeze could rally the AUD/USD. If the RBA leaves the door open to additional easing, the AUD/USD could extend its losses. REACTIVE TRADE

TECHNICALS

9200 rejected hard
9100 holds for now
9000 long term support

The Aussie was rejected hard at the 9200 level and the failure has pushed the pair all the way to 9100 support. A break there opens a run to test the 9000 level.

2. USD/JPY – Japanese All Industry Activity Index

FUNDAMENTALS
All Industry Activity Index expected @ -0.7% (12:30 AM ET / 4:30 GMT)
Our View – Neutral
Reason – Neutral
If the index is -2% or worse = Buy USD/JPY
If the index is 0% or better = Sell USD/JPY

Japan’s all industry activity index is not a huge market mover for the Yen unless there is a large surprise. Therefore the data should only be traded reactively. If the index drops to -2% or lower, USD/JPY can be bought for a move higher. If the index is 0% or better, it can be sold. REACTIVE TRADE

TECHNICALS

98.00 fails to hold
97.00 key support
Break opens 96.00 in view

USD/JPYs failure at the 98.00 level bodes badly for the pair which now faces another test at the 97.00 level and break there opens up a possible run towards the 96.00 level.

3. EUR/USD – German Producer Prices

FUNDAMENTALS
PPI expected @ 0.2% (2 PM ET / 6 GMT)
Our View – Bullish EUR
Reason – Smaller Decline in Wholesale Prices
If GE PPI rises by 0.4% or more = Buy EUR/USD
If GE PPI declines by -0.2% or more = Sell EUR/USD

We have strong reasons to believe that German producer prices ticked up in the month of July because wholesale prices, which measure a similar subset of goods fell by a smaller amount and consumer prices increased. As a result, we believe that the data can be traded proactively or reactively. For those who choose to wait, if producer prices rise by 0.4% or more, the EUR/USD can be bought for a move higher. If PPI declines by 0.2% or more, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.3400 still not broken
1.3300 holds
Consolidation remains in place

The EUR/USD continues to be capped by the 1.3300-1.3400 corridor with topside still holding firm. A break above opens a run towards 1.3500 but for now congetsion builds.

4. USD/CAD – Wholesale Sales

FUNDAMENTALS
Wholesale sales expected @ -0.5% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Canadian wholesale sales drops by -1% or more = Buy USD/CAD
If Canadian wholesale sales exceed 0.5% = Sell USD/CAD

Canadian wholesale sales are not a huge market mover for the Canadian dollar unless there is a big surprise. Therefore the data can only be traded reactively. If Canadian wholesale sales drop by -1% or more, USD/CAD can be bought for a move higher. If sales exceed 0.5%, USD/CAD can be sold. REACTIVE TRADE

TECHNICALS

1.0350 is the new equilibrium
Forming a tight volatility compression
1.0400 topside resistance

USD/CAD is compressing into a very tight volatility block with 1.0350 holding as an equilibrium point but breakout on either side could set the direction for the near term

5. USD/MXN – Q2 GDP



FUNDAMENTALS
Q2 GDP expected @ 0.2% (9 AM ET / 15 GMT)
Our View – Bearish MXN
Reason – Weaker Retail Sales and Trade
If GDP growth is 0% or lower = Buy USD/MXN
If GDP growth is 0.6% or higher = Sell USD/MXN

Second quarter GDP numbers are scheduled for release from Mexico tomorrow and given the decline in retail sales and trade activity, we expect the data to show Mexico’s economy growing at a slower pace. Retail sales and trade are the 2 most important components of GDP and both deteriorated in the second quarter. Therefore we feel that the data can be traded proactively or reactively. For those who choose to wait, if GDP growth is flat or declines, USD/MXN can be bought for a move higher. If GDP growth is 0.6% or higher, USD/MXN can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

Big breakout
Testing resistance at 13.2000
Clearance there opens run to 13.5000

USD/MXN posted a big breakout day suggesting further upside ahead. The first key test is the 13.2000 level with a break there putting 13.5000 in view

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