TOP 5 HOT IDEAS

DATE: Thursday April 4, 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 Retail Sales

FUNDAMENTALS
Retail Sales @ 0.3% (8:30 PM ET / 00:30 GMT)
Our View – Neutral
Reason – Neutral
If Retail Sales grow by 0.8% or more = Buy AUD/USD
If Retail Sales grow by 0.1% or less = Sell AUD/USD

Australian retail sales are due for release this evening and unfortunately PMI services (our favorite leading indicator for AU retail sales) will also be released on the same day. Since we don’t have the luxury of seeing the outcome for PMI services right now, the only opportunity we see is to trade the data reactively. However if the sales component of PMI services due at 22:30 GMT rises significantly, AUD/USD could be bought ahead of retail sales. If the sales component of PMI services declines, AUD/USD can be sold. For those who choose to wait, if retail sales grow by 0.8% or more, we expect the AUD/USD to rally. If retail sales grow by 0.1% or less, we expect the AUD/USD to weaken. REACTIVE TRADE

TECHNICALS 
1.0500 fails again
1.0450 still support
Distribution top in play?

Aussie continues to fail at 1.0500 but holds at 1.0450 for 2nd day. This battle between bears and bulls is likely to be resolved soon with either 1.0500 or 1.0400 broken to establish near term direction.

2. USD/JPY – Bank of Japan Rate Decision

FUNDAMENTALS
BoJ Rate Decison expected @ (Unknown but usually between 11PM-1AM / 3 -5 GMT)
Our View – Neutral
Reason – Neutral
If BoJ announces Open ended QE = Buy USD/JPY
If BoJ announces limited stimulus = Sell USD/JPY

Expect USD/JPY to have a big reaction to tonight’s BoJ meeting. We believe the BoJ is setting up themselves for disappointment but the event risk should be traded reactively. According to the CFTC’s IMM report, many speculators are short Yen already so in order for the rally in USD/JPY to regain momentum, the BoJ will need to over deliver. We believe that anything short of open ended QE and a major expansion in the scope and duration of asset purchases may not be enough. If the central bank opts for a contained expansion in monetary policy that would allow them to reevaluate the market’s reaction and increase stimulus further at the end of the month, it would be a disappointment. Currently the BoJ is buying JGBs up to 3 years, if they extend their purchases to 5 years and leave it at that, it would probably be interpreted as a disappointment. If they expand purchases to 10 years, it would be neutral to slightly bearish for USD/JPY and only if they expand the maturity of bonds purchased to 30 years, could it be slightly positive for USD/JPY. If the BoJ disappoints, expect a big move lower in the currency pair. REACTIVE TRADE

TECHNICALS 
At a very critical juncture
92.50 key hold
Break opens downside to 91.50

USD/JPY now finds itself at a very critical juncture as it once again tests the key 92.50 level. A break there would open a run towards 91.50 and establish a intermediate term negative bias.

3. GBP/USD – PMI Services

FUNDAMENTALS
PMI Services expected @ 51.5 (4:30 AM ET / 8:30 GMT)
Our View – Bullish GBP
Reason – Slightly Higher PMI Mfg and Steady Confidence
If PMI exceeds 53 = Buy GBP/USD
If PMI drops below 50 = Sell GBP/USD

We have good reasons to believe that service sector activity in the U.K. accelerated last month because there was a mild improvement in manufacturing activity and consumer confidence held steady. We believe the data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 53, we expect the GBP/USD to rise. If it drops below 50, we expect the GBP/USD to slide. PROACTIVE or REACTIVE TRADE

TECHNICALS 
5150 news resistance
5100 holds for now
5050 deeper support

Cable tried to consolidate and retrace today, but found stiff resistance at 1.5150 level as it hovers near the 1.5100 support. A break further would create a test of 1.5050 and the key 1.5000 level while upside is capped by very strong resistance at 1.5250.

4. EUR/USD – ECB Draghi Post Rate Decision Press Conference

FUNDAMENTALS
ECB Draghi Press Conference expected @ (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Likely to be bearish EUR
If Draghi is optimistic = Buy EUR/USD
If Draghi drops hints on potential for a rate cut = Sell EUR/USD

The ECB is widely expected to leave interest rates unchanged but given the recent weakness in German economic data and problems in Cyprus, there’s speculation that the ECB could lay the foundation for a rate cut. If that were the case, it would be signaled in Mario Draghi’s post monetary policy meeting press conference. There are plenty of reasons for why the ECB may be warming to the idea of more stimulus but German stocks have recently climbed to 5 year highs and the EUR has fallen – two factors that help to support the region’s economy. That may not be enough to wash away the ECB’s concerns but it’s a factor in this week’s central bank meeting. Either way, we don’t expect any optimism from the ECB and pessimism alone could sink the EUR if Draghi even hints that a rate cut is possible. The cracks are beginning to show in Germany and Cyprus could be the first of many weaker southern European nations such as Slovenia to seek emergency funding from the ECB. To preempt some of these difficulties, Draghi may want to ease. When the ECB plans to change monetary policy, they usually like to prepare the market for the move by dropping hints early. If we are wrong and Draghi sounds calm and unconcerned about the recent deterioration in economic data and the problems in Cyprus and Italy, it would be just what the EUR/USD needs to stage a stronger recovery towards 1.30. Given these unknowns, Draghi’s press conference is best traded reactively. REACTIVE TRADE

TECHNICALS 
2850-75 still chunky
2800 holds
Consolidation continues

The EURUSD continues to bump up against the 2875 level but holds well at 2800 as the pair continues to consolidate in a broad 1.2750-1.2850 range

5. USD/JPY – Jobless Claims

FUNDAMENTALS
Jobless Claims expected @ 353K (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Jobless Claims drop below 345K = Buy USD/JPY
If Jobless Claims exceed 370K = Sell USD/JPY

Jobless claims are not a huge market mover for the U.S. dollar unless there is a big surprise so the data is best traded reactively. If jobless claims drop below 345K, we expect USD/JPY to rally. If claims rise and exceed 370K, we expect USD/JPY to weaken. REACTIVE TRADE