TOP 5 HOT IDEAS

DATE: Monday April 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. USD/JPY – Quarterly Tankan Report

FUNDAMENTALS
Tankan Large Manufacturers Index @ -7 (7:50 PM ET / 23:50 GMT)
Our View – Bullish JPY but no Trade
Reason – Weaker Yen Bolsters Economic Activity
If Tankan Index is -15 or lower = Buy USD/JPY
If Tankan Index is -5 or better = Sell USD/JPY

Japan’s Quarterly Tankan survey is one of the country’s most important economic releases because it is a measure of business confidence. Given the recent weakness of the Yen and overall gains in equities, the market is looking for confidence to improve. Normally, this should help the Yen but many markets are closed for trading on Monday. As a result, we expect a nominal reaction in the JPY unless there is a very significant surprise. Therefore the data is best traded reactively. If the Tankan index drops to -15 or lower, we expect USD/JPY to rally. If the index rebounds to -5 or better, we expect USD/JPY to fall. REACTIVE TRADE

TECHNICALS

94.00- 94.50 consolidation
Break of 95.00 opens run to 96.00
93.50 still supports

USD/JPY spent the day quietly consolidating but remains trapped between 94.00-95.00 only a break through that level puts the bullish bias back on.

2. AUD/USD for Chinese Manufacturing PMIs

FUNDAMENTALS
Chinese Mfg PMI expected @ 51.2 (9 PM ET / 1 GMT)
Our View – Neutral
Reason – Neutral
If PMI exceeds 52 = Buy AUD/USD
If PMI drops below 50 = Sell AUD/USD

The official Chinese manufacturing PMI numbers are due for release on Monday and as usual, we expect the Australian dollar to have the biggest reaction. Chinese data is always difficult to handicap and therefore best traded reactively. If the PMI index exceeds 52, we expect AUD/USD to rally. If the index drops below 50, we expect the AUD/USD to weaken. REACTIVE TRADE

TECHNICALS

1.0500 may be near term top
1.0400 holds
1.0350 supports

Aussie may have set a near term top at 1.0500 but for now it remains relatively steady as 1.0400 then 1.0350 supports

3. USD/TRL – Turkish GDP

FUNDAMENTALS
Q4 GDP expected @ (3 AM ET / 7 GMT)
Our View – Neutral
Reason – Slightly Weaker trade and confidence
If GDP Growth is less than 0% = Buy USD/TRL
If GDP Growth exceeds 0.5% = Sell USD/TRL

Turkey’s fourth quarter GDP numbers will be released on Monday and economists are looking for acceleration in GDP growth. Since the country does not release consumer spending numbers, the data is difficult to predict but we know that trade was weaker and confidence declined. Nonetheless, we still prefer to trade the data reactively. If GDP growth is less than 0%, we expect USD/TRL to rally. If GDP growth exceeds 0.5%, we expect USD/TRL to weaken. REACTIVE TRADE

TECHNICALS

1.8000 still holds
Little movement
1.8200 caps for now

USD/TRY remains very quiet with 1.8000 holding while 1.8200 caps for now

4. EUR/USD – U.S. ISM Manufacturing

FUNDAMENTALS
ISM Manufacturing expected @ 54 (10 AM ET / 14 GMT)
Our View – Bearish USD
Reason – Weaker Chicago and Empire State but Stronger Philly Fed
If ISM is less than 52 = Buy EUR/USD
If ISM exceeds 56 = Sell EUR/USD

The US’ ISM Manufacturing index is scheduled for release on Monday and while we usually look for a reaction in USD/JPY, since we have already outlined the technical outlook for USD/JPY, we have decided to show the EUR/USD for variety. Both USD/JPY and the EUR/USD should react to ISM if there is a large enough surprise. We have good reasons to believe that the ISM index or manufacturing activity across the nation slowed in the month of March because 2 out of 3 regional indices declined. Both the Chicago PMI and Empire State surveys fell while the Philly Fed survey increased. We believe that US ISM can be traded proactively or reactively. For those who choose to wait, if the ISM index drops to 52 or lower, we expect EUR/USD to rally. If it rises to 56 or higher, we expect EUR/USD to decline. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.2800 continues to support
1.2850 then 1.2900 key resistance points
1.2750 major support

The EUR/USD remains within a very tight 2800-2850 range but this would the third day that it held 2750 suggesting that some sort of a bottom may be taking place as long as that level holds.

5. USD/MXN – Manufacturing Index

FUNDAMENTALS
IMEF Manufacturing Index expected @ 52.2 (2 PM ET / 18 GMT)
Our View – Neutral
Reason – Neutral
If the Manufacturing Index exceeds 54 = Buy USD/MXN
If the Manufacturing Index drops below 50, = Sell USD/MXN

Mexico’s manufacturing and non-manufacturing indices are scheduled for release tomorrow and given the country’s dependence on exports, the manufacturing data will be more important. Economists are looking for stronger U.S. growth to promote Mexico’s manufacturing sector and if they are right, USD/MXN will fall. However this data is difficult to handicap and therefore in our opinion, should be traded reactively. If the manufacturing index exceeds 54, we expect USD/MXN to rally. If the manufacturing index drops below 50, we expect USD/MXN to fall. REACTIVE TRADE

TECHNICALS

Still consolidating near 12.30
Break opens up runt to 12.00
12.50 caps upside

USD/MXN continues to consolidate near the lows at 12.30 with a break lower leading to a possible run to 12.00. 12.50 caps the upside.