Top 5 08.30.13

TOP 5 HOT IDEAS

DATE: Friday August 30, 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 Industrial Production



FUNDAMENTALS
Industrial Production expected @ 3.6% (7:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Industrial Production declines by -0.1% or more = Buy USD/JPY
If Industrial Production rises by 4% or more = Sell USD/JPY

There are a number of Japanese economic reports scheduled for release this evening but we feel that industrial production will be the most important because it is an activity index that can provide clues on how the economy will performing going forward. The data is difficult to handicap and therefore best traded reactively. If industrial production declines by -0.1% or more, USD/JPY can be bought for a move higher. If industrial production rises by 4% or more, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

98.50 fails to hold
97.50 near term support
Break key to test of 99.00

USD/JPY rallied but failed to hold the 98.50 level which is key to making a run towards the retest of 99.00.

2. EUR/USD – German Retail Sales


FUNDAMENTALS
German Retail Sales expected @ 0.6% (2 AM ET / 6 GMT)
Our View – Bearish EUR
Reason – Weaker confidence and increase in unemployment
If Retail Sales exceed 0.8% = Buy EUR/USD
If Retail Sales growth is less than 0.2% = Sell EUR/USD

We have good reasons to believe that tomorrow’s German retail sales could surprise to the downside. According to the latest consumer confidence report, the outlook for September deteriorated. Labor market conditions have worsened and a retail survey by Markit Economics show little change in spending on a month to month basis. As such we believe that, consumer spending may have rebounded as much as economists expect in the month of July. The data can be traded proactively or reactively. If German retail sales growth exceeds 0.6%, the EUR/USD can be bought for a move higher. If retail sales grow by 0.2% or less, the EUR/USD can be sold. REACTIVE TRADE

TECHNICALS

1.3300 gives way
1.3200 holds for now
Break opens test of 1.3150

After holding in a tight range for a week the euro finally gave way to the downside breaking 1.3300 but finding support just ahead of the 1.3200. A break there opens up a run to 1.3150.

3. GBP/USD – UK Mortgage Approvals

FUNDAMENTALS
Mortgage Approvals expected @ 58.8K (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 report will be mortgage approvals. While the London real estate market is holding, 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, we feel that 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

Inside day
5500 now equilibrium
Break of 5550 opens retest 5600

GBP/USD posted an inside day as 5500 remains the equilibrium level for now, with a break of 5550 opening up a run towards 5600.

4. USD/CAD – Q2 GDP

FUNDAMENTALS
Q2 GDP expected @ 1.6% (8:30 AM ET / 12:30 GMT)
Our View – Bearish CAD
Reason – Lower Retail Sales and Trade
If GDP growth is less than 1.0% = Buy USD/CAD
If GDP growth exceeds 2.5% = Sell USD/CAD

Second quarter GDP numbers are scheduled for release tomorrow and we have strong reasons to believe that the data will be weak. The 2 main components of GDP are retail sales and trade, both of which declined in Q2. As such, we feel that the data can be traded proactively or reactively. If GDP growth is less than 1%, USD/CAD can be bought for a move higher. If GDP growth exceeds 2.5%, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.0500 taken out again
1.0600 still caps
1.0450 remains support

After several days of topping action USD/CAD took out 1.0500 to the upside again but the 1.0600 level continues to cap the move while 1.0450 is the new support level.

5. USD/JPY – Chicago PMI



FUNDAMENTALS
Chicago PMI expected @ 53 (9:45 AM ET / 13:45 GMT)
Our View – Bearish USD
Reason – Weaker Empire and Philly
If Chicago PMI exceeds 55 = Buy USD/JPY
If Chicago PMI is less than 50 = Sell USD/JPY

We have good reasons to believe that the Chicago PMI report will surprise to the downside because manufacturing activity weakened in the Chicago and Philadelphia regions. As such we feel that this data can therefore be traded proactively or reactively. For those who choose to wait, if the Chicago PMI index exceeds 55, USD/JPY can be bought for a move higher. If the index drops to 50 or lower, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

98.50 fails to hold
97.50 near term support
Break key to test of 99.00

USD/JPY rallied but failed to hold the 98.50 level which is key to making a run towards the retest of 99.00.

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