Top 5 – 06.06.2013

*Top 5 Archive Members Only Top 5


DATE: Thursday June 7, 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. USD/JPY – Japanese Purchases of Foreign Bonds

MoF Data on Japan Buying Foreign Bonds expected @ (7:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Purchases exceed 0B = Buy USD/JPY
If Purchases are -100B or lower = Sell USD/JPY

An essential criteria for a resumption of the USD/JPY rally is Japanese purchases of foreign bonds. Last week’s report showed extremely heavy selling. While this data has become very important it is unfortunately difficult to handicap. If we continue to see more sales than buys of foreign bonds, USD/JPY can be sold for a deeper correction. The only opportunity to trade this data is reactively and if the 2% U.S. yield finally draws demand from the Japanese, leading to an increase in purchases, USD/JPY can be bought as investors start to see this as a renewed trend. REACTIVE TRADE


99.00 continues to hold but just
Break bring 98.50 in view
100.00 now caps

USD/JPY continues its slide lower with 99.00 the new pressure point. If that level gives 98.50 comes into view while 100.00 has now become resistance

2. AUD/USD – Trade Balance

Trade Balance expected @ 180M (9:30 PM ET / 1:30 GMT)
Our View – Bearish AUD
Reason – Big Drop in Manufacturing PMI in April
If the trade surplus exceeds 350M = Buy AUD/USD
If the trade surplus is less 100M = Sell AUD/USD

With the PMI manufacturing index declining further in the month of April, we have good reasons to believe that the trade surplus shrank. Another piece of weak data could drive the AUD/USD below 95 cents. As such, this data can be traded proactively or reactively. For those who choose to wait, if the trade surplus exceeds 350M, the AUD/USD can be bought for a quick move higher. If the surplus is less than 100M, the AUD/USD can be sold for an extension lower. PROACTIVE or REACTIVE TRADE


More downside pressure
9500 holds
9650 now caps upside

Aussie continues to see more downside pressure with 9500 key barrier very vulnerable to a run. To the upside 9650 caps the action.

3. EUR/CHF – Swiss CPI

Swiss CPI expected @ 0.1% (3:15 AM ET / 7:15 GMT)
Our View – Neutral
Reason – Neutral
If CPI declines = Buy EUR/CHF
If CPI rises by 0.5% or more = Sell EUR/CHF

Switzerland’s consumer price report is not a huge market mover for the Swiss Franc unless there is a meaningful surprise so the data is best traded reactively. If consumer prices decline by any amount, EUR/CHF can be bought for a move higher. If CPI rises by 0.5% or more, EUR/CHF can be sold. REACTIVE TRADE


1.2400 gives way
1.2350 tested
Break opens a run to 1.2300

EUR/CHF continues to drift lower on CHF strength as 2350 is now tested with 1.2300 in view for the shorts. 1.2400 now is the upside resistance

4. EUR/USD – ECB Draghi Press Conference

ECB Press Conference expected @ (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Draghi puts greater emphasis on improved outlook = Buy EUR/USD
If Draghi puts greater emphasis on negative rates = Sell EUR/USD

The ECB is not expected to change interest rates which leaves Central Bank President Draghi’s press conference as the primary focus for FX Traders. The EUR/USD is prime for a breakout and Draghi’s comments are the perfect catalyst. Since the last monetary policy meeting, we have seen both improvements and deterioration in Eurozone data. Up until this weekend when ECB President Draghi noted “few signs of possible stabilization” in the Eurozone and said he expects a “very gradual recovery” later this year, the head of the central bank seemed to be a larger advocate for negative rates. This contrasts with some of the skepticism on the effectiveness of negative rates expressed by Nowotny, Mersch, Asmussen and Noyer, all members of the Governing Council. Draghi will need to carefully balance a slightly more optimistic outlook for the economy with an open mind on negative rates. As this may be confusing to investors, clarification could come from the central bank’s latest economic forecasts. While we are optimistic that the EUR could rally, we are not particularly hopeful as the ECB will want to avoid saying anything that could drive the euro sharply higher. Therefore the ECB meeting is best traded reactively. If Draghi puts greater emphasis on the possibility of negative rates over improving data, the EUR/USD could reverse its rise. If he focuses on the bright spots in the economy however the EUR/USD could squeeze higher and finally muster a strong break of 1.31. REACTIVE TRADE


3100 very tough resistance
3050 good support
3000 hold key to upside trend

The euro continues to be stymied by 1.3100 but finds very good bids at 1.3050. Tomorrow’s event risk will likely break the stalemate with the pair needing to hold the 1.3000 suport to preserve the upside bias.

5. USD/CAD – Canadian IVEY PMI

IVEY PMI expected @ 56 (10 AM ET / 15 GMT)
Our View – Bullish CAD
Reason – Stronger Wholesale sales
If the PMI index drops below 52 = Buy USD/CAD
If the PMI index exceeds 58 = Sell USD/CAD

We have good reasons to believe that Canadian manufacturing conditions improved in May. The economy in general has been seeing more upside than downside surprises with wholesale sales ticking higher on the back of a recovery in the U.S. economy. As such, we feel that the data can be traded proactively or reactively. For those who choose to wait, if the PMI index drops below 52, USD/CAD can be bought for a move higher. If it exceeds 58, USD/CAD can be sold. PROACTIVE or REACTIVE TRADE


Rebound to 1.0350 consolidation
1.0250 still downside resistance
1.0400 caps upside

The loonie continues to be trapped between 1.0250-1.0350 but a break of this tight range could signal a deeper move in the coming weeks.