Top 5 – 09.05.2013

TOP 5 HOT IDEAS

DATE: Thursday Sept 5, 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 – Australian Trade Balance



FUNDAMENTALS
Trade Balance expected @ 100M (9:30 PM ET / 1:30 GMT)
Our View – Bearish AUD
Reason – Drop in Manufacturing in July
If Trade surplus exceeds 600M = Buy AUD/USD
If Trade surplus is less than 0M = Sell AUD/USD

We have good reasons to believe that Australia’s trade deficit weakened in the month of July because that month the PMI manufacturing index plunged. The export component of the PMI report also dropped confirming our belief that external demand weakened. The data can be traded proactively or reactively. For those who choose to wait, if the Trade surplus exceeds 600M, we believe the AUD/USD can be bought for an extension higher. If Trade surplus is less than 0M, the AUD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

9200 next in view
9000 now new support
Recovery in full bloom

The recovery in Aussie continues is full force today with the pair posting another strong day of gains. It now eyes 9200 on the long side while 9000 becomes the new support.

2. USD/JPY – No Changes Expected from the BoJ

FUNDAMENTALS
BoJ Announcement expected @ (TBD but usually around 1 AM ET / 6 GMT)
Our View – Neutral
Reason – Neutral
If BoJ leaves monetary policy unchanged = No Trade
If BoJ Eases monetary policy = Buy USD/JPY

This month’s Bank of Japan meeting is expected to be a nonevent for the Yen because the central bank is comfortable with the current level of policy. If the BoJ leaves their asset purchase program and interest rates unchanged like we expect, the BoJ meeting will be a nonevent for USD/JPY, which is why we think the meeting can only be traded reactively. However if for whatever reason the BoJ decides to ease monetary policy, which we don’t expect, then we believe USD/JPY can be bought for a stronger move higher. REACTIVE TRADE

TECHNICALS

100.00 key level topside
99.00 holds
Break opens run to 101.00

USD/JPY had a relatively quiet day but the upside bias remains in place with 100.00 the key takeout level which will then open a run to 101.00.

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 but we are not sure if they will release one this month since they skipped doing so last month. As a result, the BoE meeting can only be traded reactively. If the central bank releases a detailed monetary policy statement that contains more optimism, the GBP/USD can be bought for a move higher. If they release a statement containing more caution, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

5600 taken out
5650 still caps
5700 much tougher upside resistance

Cable had another good day, but failed to break above 5650 as the overall resistance at 5700 is still containing all the rallies. 5500 support the downside.

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. Economic data since the last meeting has been mixed so we do not anticipate any major changes in the central bank’s stance. However if Draghi sounds more optimistic, 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

3200 retaken
3150 now near term bottom
3250 next upside level for longs

The euro is making a short term bottom with 3150 holding. As 3200 is taken to the upside the pair eyes 3250 in its recovery move, but a break below 3150 could open a test of 3050.

5. USD/JPY – ISM Non-Manufacturing



FUNDAMENTALS
ISM expected @ 55 (10 AM ET / 15 GMT)
Our View – Bullish USD
Reason – Stronger manufacturing ISM and mixed confidence
If ISM rises to 56 or higher = Buy USD/JPY
If ISM falls to 54 or lower = Sell USD/JPY

We have good reasons to believe that U.S. manufacturing activity improved last month because manufacturing activity increased. However we only have a level 2 confidence on this call since the improvement was a surprise and confidence was mixed. Nonetheless, we feel the data can be traded proactively or reactively. For those who choose to wait, if the ISM index rises to 56 or higher, USD/JPY can be bought for a move higher. If the ISM index falls to 54 or lower, USD/JPY should be sold for a move lower. PROACTIVE or REACTIVE TRADE

TECHNICALS

100.00 key level topside
99.00 holds
Break opens run to 101.00

USD/JPY had a relatively quiet day but the upside bias remains in place with 100.00 the key takeout level which will then open a run to 101.00.

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