TOP 5 HOT IDEAS

DATE: Friday May 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 – PMI Services

FUNDAMENTALS
PMI Services expected @ (7:30 PM ET / 23:30 GMT)
Our View – Bearish AUD
Reason – Sharp Decline in PMI Manufacturing
If PMI Services exceed 50.5 = Buy AUD/USD
If PMI Services drop below 49 = Sell AUD/USD

We have strong reasons to believe that Australian service sector activity slowed in the month of April. There was a huge decline in the manufacturing sector and overall a general pullback in Australian economic activity. PMI services should tell the same story as the PMI manufacturing release. As a result, we believe that the data can be traded proactively or reactively. For those who choose to wait, if the PMI services index exceeds 50.5, the AUD/USD can be bought for a short squeeze higher. If the index drops below 49, the AUD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS


1.0225 hols for now
1.0300 remains resistance
1.0200 next target of shorts

The Aussie drifted lower but found a modicum of support at the 1.0225 level possibly forming a small double bottom. 1.0300 remains key upside resistance while a break of today’s support targets 1.0200

2. NZD/USD – China Non-Manufacturing PMI

FUNDAMENTALS
Non-Mfg PMI @ (9 PM ET / 1 GMT)
Our View – Neutral
Reason – Neutral
If PMI index exceeds 57 = Buy NZD/USD
If the PMI index drops to 54 or lower = Sell NZD/USD

Chinese economic data is notoriously difficult to handicap and the PMI non-manufacturing report is no exception. Based on other Chinese data, the economy is slowing gradually but a larger surprise is needed to move the NZD/USD. Therefore we believe the data is best traded reactively. For those who choose to wait, if the PMI index exceeds 57, the NZD/USD can be bought for a move higher. If the PMI index drops to 54 or lower, the NZD/USD can be sold. REACTIVE TRADE

TECHNICALS

.8450 proves to be a value area for kiwi
8550 first order of resistance
8600 next resistance to upside

Kiwi found some decent support at 8450 as buyer scooped up the pair on value zone and the upside now points to 8550 and then 8600. A break below today’s lows creates a very negative bias with 8300 in view

3. GBP/USD – PMI Services

FUNDAMENTALS
PMI Services expected @ 52.4 (4:30 AM ET / 8:30 GMT)
Our View – Bullish GBP
Reason – Stronger PMI Manufacturing and Construction
If PMI index exceeds 54 = Buy GBP/USD
If the PMI index drops to 51.0 or lower = Sell GBP/USD

Despite all of the worries about the U.K. economy, data has consistently surprised to the upside. PMI manufacturing and construction rebounded towards 50 and are at the cusp of rising back into expansionary territory. This tells us that the odds favor an upside surprise in PMI services. The data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 54, the GBP/USD can be bought for a move higher. If the index drops to 51 or lower, the NZD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

5500 gets tested
5600 still caps upside
5450 deeper support

Cable tested the 5500 support today and managed a small bounce off the lows. The upside remain capped at the 1.5600 level while 1.5450 is likely to be deeper support for the pair.

4. EUR/USD – Eurozone Producer Prices

FUNDAMENTALS
PPI expected @ -0.2% (5 AM ET / 9 GMT)
Our View – Bearish EUR
Reason – Weaker German and French PPI
If PPI grows by 0.2% or more = Buy EUR/USD
If PPI contracts by -0.5% or more = Sell EUR/USD

We have good reasons to believe that Eurozone producer prices declined in March. Whenever we look to handicap EZ data we always turn to the reports of the region’s 2 largest economies – Germany and France. Prices declined in both countries during the month of March. Therefore we believe the data can be traded proactively or reactively. For those who choose to wait, if PPI grows by 0.2% or more, the EUR/USD can be bought for a quick move higher. If PPI contracts by -0.5% or more, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

1.3100 given
1.3050 remain support
1.3000 key level to hold

The EUR/USD broke the 1.3100 level after posting a key reversal yesterday and now 1.3050 and 1.3000 remain the key supports to the downside. 1.3200 still caps any upside rally.

5. USD/JPY – U.S. Non-Farm Payrolls

FUNDAMENTALS
Payrolls expected @ 140K (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If payrolls exceed 150K = Buy USD/JPY
If payrolls rise by less than 100K = Sell USD/JPY

Non-farm payrolls are a notorious for causing volatility in the FX market and should therefore only be traded reactively. If payrolls exceed 150K, USD/JPY can be bought for an extension move higher. If it rises by less than 100K, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

97.00 holds
Bounce to 98.00 relieves downside pressure
99.00 remains the cap to upside.

USD/JPY managed to stave off yet another run at the 97.00 and the break above 98.00 relived some downside pressure. 99.00 caps upside while a break of 97.00 portends further selloff.