TOP 5 HOT IDEAS

DATE: Friday May 17, 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. NZD/USD – New Zealand Producer Prices

FUNDAMENTALS
PPI expected @ 0.2% (6:45 PM ET / 22:45 GMT)
Our View – Bullish NZD
Reason – CPI and Commodity Prices Increased in Q1
If PPI growth exceeds 0.5% = Buy NZD/USD
If PPI growth drops by 0.1% or more = Sell NZD/USD

We have strong reasons to believe that New Zealand producer prices increased in the first quarter because commodity prices increased substantially in the first 3 months of the year. CPI was also released before PPI and it ticked higher. Therefore the data can be traded proactively or reactively. For those who choose to wait, if PPI growth exceeds 0.5%, the NZD/USD can be bought for a move higher. If PPI growth drops by 0.1% or more, the NZD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

8150 holds
8200 now near term support
Selling overdone?

The kiwi dump continued but the pair found a modicum of support at the 8150 level. 8200 now becomes near term resistance. Given the severity of the selloff the pair may need a few days o consolidation but the selling for now appears overdone.

2. USD/JPY – Japanese Machine Orders

FUNDAMENTALS
Machine Orders expected @ 3.5% (7:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Machine Orders drop by 1% or more = Buy USD/JPY
If Machine Orders rise by 8% or more = Sell USD/JPY

Japan’s report on machine orders is not a big mover for the Japanese Yen unless there is a meaningful surprise. As a result, the data should only be traded reactively. If Machine Orders drop by 1% or more, USD/JPY can be bought for a quick move higher. If Machine Orders rise by 8% or more, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

102.50 fails to hold again
102.00 again supports
Topping?

Once again USD/JPY failed to clear the 102.50 level although support underneath the 102.00 level continues to be firm. Still the loss of forward momentum indicates a near term topping and unless 102.75 is taken out soon a break below 102.00 could open a correction towards 101.50

3. USD/CAD – Consumer Prices

FUNDAMENTALS
CPI expected @ 0.0% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – IVEY PMI prices increase but slower raw material and price growth
If CPI drops by 0.2% or more = Buy USD/CAD
If CPI growth exceeds 0.3% = Sell USD/CAD

We expect tomorrow’s Canadian CPI report to impact how USD/CAD trades. Unfortunately this month’s release is difficult to handicap because prices increased according to the IVEY PMI report but slowed according to raw material and industrial product prices. As a result, the data is best traded reactively. If CPI drops by 0.2% or more, USD/CAD can be bought for a move higher. If CPI growth exceeds 0.3%, USD/CAD can be sold. REACTIVE TRADE

TECHNICALS

Back towards 1.0200
1.0150 still supports
Tight consolidation

USD/CAD remains in tight consolidation with 1.0200 capping upside while 1.0150 supports. The bias remains slightly up for now.

4. USD/JPY – University of Michigan Consumer Confidence Index

FUNDAMENTALS
UMich expected @ 77.9 (9:55 AM ET / 13:55 GMT)
Our View – Bearish USD
Reason – Lower IBD/TIPP Index
If UMich Index exceeds 78= Buy USD/JPY
If UMich index drops to 77 or lower = Sell USD/JPY

While we are long term bullish USD/JPY, we believe that the currency pair could experience a near term correction especially after recent U.S. data disappointments. The University of Michigan Consumer Confidence index is scheduled for release tomorrow and while stocks have performed well, confidence weakened according to the IBD/TIPP index. We think that the UMich survey will suffer a similar pullback. For those who choose to wait, if the UMich Index exceeds 78, USD/JPY can be bought for a move higher. If the UMich index drops to 77 or lower, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

102.50 fails to hold again
102.00 again supports
Topping?

Once again USD/JPY failed to clear the 102.50 level although support underneath the 102.00 level continues to be firm. Still the loss of forward momentum indicates a near term topping and unless 102.75 is taken out soon a break below 102.00 could open a correction towards 101.50

5. EUR/USD – ECB Commentary

FUNDAMENTALS
ECB Coeure, Asmussen, Praet and Mersch scheduled to speak
Our View – Neutral
Reason – Neutral
No comments on EUR, negative deposit rates or ABS purchases = No Trade
ECB officials suggest EUR should be weaker or say negative deposit rates or ABS purchases are on the table = Sell EUR/USD

There are no Eurozone economic reports on the calendar tomorrow but comments from central bankers could affect how the EUR/USD trades. If policymakers make no mention of the need for a weaker EUR, negative deposit rates or ABS purchases, there is no trade. However if they suggest that the EUR should be weaker or say negative deposit rates or ABS purchases are on the table, the EUR/USD can be sold for a further move lower. REACTIVE TRADE

TECHNICALS

2900 recovered but falters
2850 holds
2750 deeper support

The EUR/USD stabilized at the 2850 level but the pair failed to punch through 2900 as rally faltered in late NY afternoon. 2850 remains key and a break below 2830 opens a run to 2800 while another takeout of 2900 suggest we may have bottomed for now.