TOP 5 HOT IDEAS

DATE: Tuesday June 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 – RBA Rate Decision

FUNDAMENTALS
RBA Rate Decision expected @ 2.75% (12:30 AM ET / 4:30 GMT)
Our View – Neutral
Reason – Neutral
If RBA tone shifts to neutral from dovish = Buy AUD/USD
If RBA remains dovish = Sell AUD/USD

The RBA is not expected to alter interest rates tonight but the tone of the central bank could have a large impact on how the AUD/USD trades. We have 2 orders laid out in EUR/AUD and if you choose to not trade the RBA rate decision in the same way, then trading the event risk reactively is the way to go. If the RBA shifts its tone from dovish to neutral, the AUD/USD can be bought for a further squeeze higher. If the RBA ignores recent improvements and the decline in the AUD and remains dovish, the AUD/USD can be sold for a resumption of the downtrend. REACTIVE TRADE

TECHNICALS

Huge breakout
9850 now key resistance
9600 supports

After days of bottoming out Aussie finally stages a short covering rally and may extend further, but for now 9850 caps upside while 9600 supports.

2. GBP/USD – UK PMI Construction

FUNDAMENTALS
PMI Construction expected @ 49.8 (4:30 AM ET / 8:30 GMT)
Our View – Neutral
Reason – Neutral
If the PMI index exceeds 51 = Buy GBP/USD
If the PMI index drops to 48 or lower = Sell GBP/USD

The UK’s PMI Construction index is scheduled for release tomorrow and the data is not expected to have a significant impact on the GBP unless there is a decent surprise. Therefore the UK PMI Construction index should only be traded reactively. If the index exceeds 51, the GBP/USD can be bought for an extension higher. If it drops to 48 or lower, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

5400 caps
5250 now support
5350 not held

The upmove in cable was significant but failure to hold above 5350 suggests that upside may be limited. 5400 caps for now while 5250 supports

3. EUR/USD – Eurozone PPI

FUNDAMENTALS
Eurozone PPI expected @ -0.2% (5 AM ET / 9 GMT)
Our View – Bearish EUR
Reason – Big Drop in French PPI, Steady German PPI
If Eurozone PPI exceeds 0% = Buy EUR/USD
If Eurozone PPI drops by -0.4% or more = Sell EUR/USD

Eurozone PPI numbers are scheduled for release tomorrow and we believe that the data will surprise to the downside. Whenever we look to handicap EZ data, we always turn to reports of the 2 largest economies – Germany and France. PPI held steady in Germany but declined sharply in France, which is why we believe the data could surprise to the downside. Therefore PPI can be traded proactively or reactively. For those who choose to wait, if Eurozone PPI rises by 0% or more, the EUR/USD can be bought for an extension higher. If PPI drops by -0.4% or more, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

Big breakout above 3100
Break above 3150 opens run to 3250
2950 holds

As we’ve noted for the past several days, the upside bias in EUR/USD has held and today’s breakout validated that view. The pair needs to takes out 3150 to open a run towards 3250 while 2950 continues to be strong support

4. USD/CAD – Canadian Trade Numbers

FUNDAMENTALS
Trade Balance @ -0.5B (8:30 AM ET / 12:30 GMT)
Our View – Bearish CAD
Reason – Lower IVEY PMI in April
If trade deficit exceeds -1.0B = Buy USD/CAD
If trade balance is 0.0B or better = Sell USD/CAD

We have good reasons to believe that Canada’s trade balance deteriorated in the month of April because manufacturing conditions declined according to that month’s IVEY PMI index. Inventories also dropped and therefore the data can be traded proactively or reactively. For those who choose to wait, if Canada’s trade deficit exceeds -1.0B, USD/CAD can be bought for a quick move higher. If the trade balance is 0.0B or better, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

Rally not impressive
1.0250 still downside resistance
1.0400 caps upside

Of all the high beta currencies the loonie rally was the weakest with 1.0250 continuing to hold any downside moves while 1.0400 remains majors resistance to upside.

5. USD/JPY – US Trade Balance

FUNDAMENTALS
Trade Balance expected @ -$41.1B (8:30 AM ET / 12:30 GMT)
Our View – Bearish USD
Reason – Lower ISM and Stronger Dollar
If Trade deficit is smaller than -$38B = Buy USD/JPY
If Trade deficit exceeds -$43B = Sell USD/JPY

We have good reasons to believe that the U.S. trade balance widened in the month of April because manufacturing activity plunged according to this morning’s ISM index and the U.S. dollar rose strongly. Therefore the data can be traded proactively or reactively. For those who choose to wait, if the Trade deficit is smaller than -$38B, USD/JPY can be bought for a move higher. If Trade deficit exceeds -$43B, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

100.00 finally gives
99.00 new support
Break lower opens run to 98.00

The run towards 100.00 which we have been eying for the past week finally took place with the pair crashing through 99.50 but it finally found support at 99.00 level and could consolidate there, but a further break below could take us all the way to 98.00