TOP 5 HOT IDEAS

DATE: Thursday May 2, 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 – Q1 Import and Export Prices

FUNDAMENTALS
Import Prices expected @ -0.5% & Export Prices expected @ 4.5% (9:30 PM ET / 1:30 GMT)
Our View – Neutral
Reason – Neutral
If Import Prices rise by 1% or more AND Export Prices rise by 4.5% or more = Buy AUD/USD
If Import Prices fall by -1% or more AND Export Prices fall by -2% or more = Sell AUD/USD

Australian first quarter import and export prices are scheduled for release this evening and if prices decline on both front, the case of easing by the RBA would be significant. If price pressures are mixed, the AUD/USD may not have as significant of a reaction. Therefore the data is best traded reactively. If Import Prices rise by 1% or more AND Export Prices rise by 4.5% or more, the AUD/USD can be bought for a move higher. If Import Prices fall by -1% or more AND Export Prices fall by -2% or more, the AUD/USD can be sold for further losses. REACTIVE TRADE

TECHNICALS


Huge reversal
1.0300 given now resistance
1.0250 next support

The Aussie reversal created a massive negative bias with 1.0350 and 1.0300 giving way as the pair ends on the lows. The 1.0300 level now acts as resistance while 1.0250 is the next target of shorts.

2. GBP/USD – U.K. PMI Construction

FUNDAMENTALS
PMI Construction @ 48.0 (4:30 AM ET / 8:30 GMT)
Our View – Neutral
Reason – Neutral
If PMI index exceeds 50 = Buy GBP/USD
If the PMI index drops to 46 or lower = Sell GBP/USD

The U.K.’s PMI construction report is not a huge market mover for the GBP/USD unless there is a significant surprise and therefore the release is best traded reactively. If the PMI index exceeds 50 which means that construction sector activity is back to flat from contractionary conditions, the GBP/USD can be bought for an extension higher. If the index drops to 46 or lower however, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

1.5600 taken but not held
1.5550 next support
1.5500 support for any corrective move

Cable eked out a move to 1.5600 but the pair could not hold the highs and such price action suggests exhaustion after several strong days of rally. 1.5550 provides near term support while 1.5500 acts as deeper support for any corrective move.

3. EUR/USD – ECB Rate Decision

FUNDAMENTALS
ECB Rate Decision expected @ 0.5% (7:45 AM ET / 11:45 GMT)
Our View – Neutral
Reason – Neutral
If ECB leaves rates unchanged and does nothing more = Buy EUR/USD
If ECB cuts rates and signals more easing to come = Sell EUR/USD

The ECB rate decision is the biggest event risk on the calendar tomorrow and despite the overwhelming agreement by economists that the ECB will cut rates by 25bp, it is not clear what else the central bank will say or do. As a result, the rate decision should only be traded reactively. If the ECB leaves rates unchanged and does nothing more the EUR/USD can be bought for an extension move higher. If they cut rates and signals more easing to come, the EUR/USD can be sold. REACTIVE TRADE

TECHNICALS

1.3200 taken out but highs not held
1.3150 near term support
1.3100 deeper support

EUR/USD staged a strong rally early but momentum faded as the day went by and the failure to hold 1.3200 may weigh on the pair. Upside now governed by break of 1.3250 while downside sees support at 1.3150 and then 1.3100.

4. USD/CAD – Canadian Trade Balance

FUNDAMENTALS
Canada Trade Balance @ -0.7B (8:30 AM ET / 12:30 GMT)
Our View – Bullish CAD
Reason – IVEY PMI index
If the Trade deficit is higher than -1.0B = Buy USD/CAD
If the Trade deficit is smaller than -0.5B = Sell USD/CAD

We have good reasons to believe that Canada’s trade balance improved in the month of March because manufacturing activity improved significantly. As result, the trade data can be traded proactively or reactively. For those who choose to wait, if the trade deficit is higher than -1.0B, USD/CAD can be bought for a move higher. If the trade Deficit is smaller than -0.5B, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.0050 stops rally
1.0100 caps upside for now
Bias remains down

The loonie remains well bid with bias in USD/CAD still down but the pair has found support at 1.0050 while 1.0100 caps any upside rally as the pair digests and consolidates the strong moves from the past several days.

5. USD/JPY – U.S. Trade Balance

FUNDAMENTALS
Trade Balance expected @ -$42.3B (8:30 AM ET / 12:30 GMT)
Our View – Bearish USD
Reason – Weaker ISM Manufacturing
If the Trade deficit is -$41.0B or better = Buy USD/JPY
If the Trade Deficit is -$44.0B or worse= Sell USD/JPY

We have good reasons to believe that the U.S. trade balance widened in the month of March because manufacturing activity expanded at its slowest this year with particular weakness in new export orders. As a result, we believe the trade balance report can be traded proactively or reactively. For those who choose to wait, if the Trade Deficit is -$41.0B or better, USD/JPY can be bought for a move higher. If the Trade Deficit is -$44B or worse, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

97.00 continues to hold
Making lower highs
Break of 97.00 opens up 96.50

USD/JPY remains strongly bid at 97.00 level, but if the figure is given 96.50 could come into view. A break above 97.50 relives some of the downside pressure.