Top 5 – 4.03.13

TOP 5 HOT IDEAS

DATE: Wednesday April 3, 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 @ -1000M (8:30 PM ET / 00:30 GMT)
Our View – Bullish AUD
Reason – Increase in PMI Manufacturing in Feb
If Trade deficit is -800M or better = Buy AUD/USD
If Trade deficit exceeds -1150M = Sell AUD/USD

We have good reasons to believe that Australia’s trade deficit narrowed in the month of February because the country’s PMI manufacturing report improved significantly that month. There’s a logical correlation between stronger manufacturing activity and stronger trade. Therefore we believe that Australia’s trade numbers can be traded proactively or reactively. For those who choose to wait, if the country’s trade deficit is -800M or better, we expect the AUD/USD to rally. If the deficit exceeds -1150M, we expect the AUD/USD to weaken. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.0480 caps upside
1.0400 holds tough
Possible double top

For the second time in a row Aussie failed to break past the 1.0500 figure setting up a possible double top formation on the 4h charts. 1.0400 still holds while a break of 1.0500 opens up run to 1.0600

2. NZD/USD -- Chinese Non-Manufacturing PMI



FUNDAMENTALS
Chinese Non-Mfg PMI expected @ (9 PM ET / 1 GMT)
Our View – Neutral
Reason – Neutral
If PMI exceeds 56 = Buy NZD/USD
If PMI drops below 52 = Sell AUD/USD

Chinese non-manufacturing PMI numbers are due for release this evening and normally the currency pair to trade is the AUD/USD but given the close relationship between New Zealand and Australia’s economies, good data for China also tends to benefit the NZD. As we mentioned in yesterday’s note on Chinese manufacturing PMI, Chinese data is difficult to handicap and best traded reactively. If the PMI index exceeds 56, we expect the NZD/USD to rally. If the PMI index drops below 52, we expect the AUD/USD to weaken. REACTIVE TRADE

TECHNICALS

8450 contains the rally
8400 holds
8500 next target of longs

The kiwi continues to hold the 8400 support level but 8450 contains the upside for now. A break there opens a run to .8500 which is more serious resistance.

3. GBP/USD – PMI Construction

FUNDAMENTALS
PMI Construction expected @ 48 (4:30 AM ET / 8:30 GMT)
Our View – Neutral
Reason – Neutral
If PMI exceeds 50 = Buy GBP/USD
If PMI drops below 45 = Sell GBP/USD

U.K. PMI Construction numbers are due for release tomorrow. Construction sector data is difficult to handicap and therefore best traded reactively. If the PMI index exceeds 50, we expect the GBP/USD to rally. If the index drops below 45, we expect the GBP/USD to weaken. REACTIVE TRADE

TECHNICALS

Major breakdown as 5250 rejected
5100 barely holds
5050 deeper support

Cable was badly rejected at the 1.5250 level and the massive turn to the downside suggests further decline ahead as 5100 barely holds while 5050 offers deeper support.

4. EUR/USD – Eurozone CPI

FUNDAMENTALS
Eurozone CPI estimate expected @ 1.6% (5 AM ET / 9 GMT)
Our View – Bearish USD
Reason – Stronger French CPI, weaker German CPI
If CPI exceeds 1.9% = Buy EUR/USD
If CPI is less than 1.5% = Sell EUR/USD

Whenever we look to forecast Eurozone data, we always turn to the reports of the region’s 2 largest economies -- Germany and France. In March, German consumer price growth slowed slightly while French CPI increased, providing a mixed signal for Eurozone CPI. As a result, we believe this data should be traded reactively. If CPI exceeds 1.9%, we expect the EUR/USD to rally. If CPI is less than 1.5%, we expect the EUR/USD to weaken. REACTIVE TRADE

TECHNICALS

2875 still caps
2800 holds for now
Consolidation continues

The EURUSD failed to take out the 1.2900 level once again but 1.2800 remains impressive support as the pair continues to consolidate in a broad 1.2750-1.2850 range

5. USD/JPY – ISM Non-Manufacturing



FUNDAMENTALS
ISM Non-Manufacturing Index expected @ 55.5 (10 AM ET / 14 GMT)
Our View – Bearish USD
Reason – Lower ISM Manufacturing
If the ISM exceeds 57 = Buy USD/JPY
If the ISM Index drops below 54, = Sell USD/JPY

We have good reasons to believe that service sector activity in the U.S. slowed last month because manufacturing activity plunged. As a result we believe this data can be traded proactively or reactively. For those who choose to wait, if the ISM non-manufacturing index exceeds 57, we expect USD/JPY to rally. If the index drops below 54, we expect USD/JPY to weaken. PROACTIVE or REACTIVE TRADE

TECHNICALS

92.50 tested but quickly bought
94.00 caps for now
Break of 92.50 opens test of 91.50

Although USD/JPY broke to fresh lows again today, the quick recovery from 92.50 suggests that it may be a near term value area, but 94.00 continues to cap the upside for now.

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