TOP 5 HOT IDEAS

DATE: Monday June 18, 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 Minutes

FUNDAMENTALS
RBA Minutes expected @ (9:30 PM ET / 1:30 GMT)
Our View – Bearish AUD
Reason – RBA was dovish this month and talked about need to ease again
If RBA minutes notes some bright spots = Buy AUD/USD
If RBA minutes emphasize downside risks = Sell AUD/USD

Given how oversold the AUD has become in recent weeks, the RBA minutes carry unusual importance. While the central bank left interest rates unchanged when they last met, they also left the door open to additional easing and downplayed the positive impact of the lower currency. As such we believe that the central bank minutes will contain a significant air of dovishness that could drive the AUD even lower. So the RBA minutes can be traded proactively or reactively. For those who choose to wait, if the RBA minutes note some bright spots in the economy, the AUD/USD could squeeze higher. If the minutes emphasize the downside risks, leading FX traders to speculate on another rate cut, the AUD/USD could slide quickly and aggressively. PROACTIVE or REACTIVE TRADE

TECHNICALS


After a wide intraday range, AUD/USD ended the US session unchanged, forming a doji candle that represents indecision. Hopefully the outlook will be clarified by the RBA minutes. In the meantime, the AUD/USD is still in a downtrend with 0.9500 being the first level of support. Should this level break then the next support will be at June low of 0.9324. If the AUD/USD starts to recover, it should find resistance at June 13th high of 0.9665. Should that level be broken then second resistance will be June 2nd high of 0.9790.

2. USD/ZAR – South African Non-Farm Payrolls

FUNDAMENTALS
Q1 Non-Farm Payrolls expected @ (3 AM ET / 7 GMT)
Our View – Neutral
Reason – Neutral
If Non-farm Payrolls stagnate or declines = Buy USD/ZAR
If Non-farm Payrolls growth exceeds 0.6% = Sell USD/ZAR

Employment reports are important for every country and South Africa is no exception. However the data is difficult to handicap and therefore best traded reactively. If non-farm payrolls stagnate or declines, USD/ZAR can be bought for a move higher. If payrolls growth exceeds 0.6%, USD/ZAR can be sold. REACTIVE TRADE

TECHNICALS


USD/ZAR ended the NY trading session at its lows and appears poised for further losses. We expect USD/ZAR to slip to its first level of support at 9.80. Should that level be broken then the next support will be at the June 3rd and swing low of 9.6605. If USD/ZAR recovers, it may find resistance at the June 12th high of 10.1474 and above there the June 10th high of 10.3591.

3. GBP/USD – UK Consumer Prices

FUNDAMENTALS
UK CPI expected @ 0.1% (4:30 AM ET / 8:30 GMT)
Our View – Neutral
Reason – BRC Shop Prices Declined, Lower input and output Prices
If CPI growth exceeds 0.5% = Buy GBP/USD
If CPI growth drops by -0.3% or more = Sell GBP/USD

We have strong reasons to believe that U.K. consumer price growth eased in the month of May because shop prices declined according to a survey conducted by the British Retail Consortium. So while PPI will be released at the same time as CPI, we have seen prices in general remain soft with input and output prices declining according to the PMIs. As such, the data can be traded proactively or reactively. For those who choose to wait, if CPI growth exceeds 0.5%, the GBP/USD can be bought for a move higher. If CPI growth drops by 0.3% or more, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS


The GBP/USD is in a strong uptrend holding its break above 1.57. While there hasn’t been much extension since then, the bias for the currency pair is still to the upside. Resistance is at this month’s high of 1.5750 and above there the January 31st high of 1.5877. Should the GBP/USD trickle lower, it may find support at 1.5365 where the 20 and 50 day SMA converge. If that level is breached, then the next support will be May 28th’s low of 1.5007.

4. EUR/USD – German ZEW Survey

FUNDAMENTALS
German ZEW expected @ 38.1 (5 AM ET / 9 GMT)
Our View – Neutral
Reason – Neutral
If the ZEW survey exceeds 40 = Buy EUR/USD
If the ZEW survey drops below 35 = Sell EUR/USD

The German ZEW survey is generally an important and market moving report for the EUR/USD but it is also difficult to handicap. While recent economic reports point to the possibility of an upside surprise, the volatility in the financial markets could also negatively affect investor confidence. As a result, the data is best traded reactively. For those who choose to wait, if the ZEW survey exceeds 40, the EUR/USD can be bought for a move higher. If the ZEW survey drops below 35, the EUR/USD can be sold. REACTIVE TRADE

TECHNICALS


With today’s positive close, the EUR/USD remains in an uptrend. As it continues higher, it should find resistance at 1.34, a level that the pair has struggled to break in the past. Above there, the next level of resistance will be at the February 12th swing high of 1.3518. On the downside, if the EUR/USD loses momentum, support should come in at the June 9th low of 1.31764. Should that level be broken then the next support will be at 1.3100 where the 20-day and 100-day SMA converge.

5. USD/JPY – U.S. Consumer Prices

FUNDAMENTALS
Consumer Prices expected @ 0.2% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – PPI declined, but Gas Prices soar
If CPI exceeds 0.5% = Buy USD/JPY
If CPI drops by -0.2% or more = Sell USD/JPY

There are a handful of U.S. economic reports scheduled for release tomorrow morning but they are expected to be mixed and should therefore only be traded reactively. Our focus will be on CPI. Last month, producer price growth declined, which points to lower CPI but economists are looking for an increase because gas prices soared. If CPI growth exceeds 0.5%, USD/JPY can be bought for an extension higher. If CPI drops by 0.2% or more however, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS


USD/JPY remains in a downtrend and appears poised for a retest of its June low of 93.77. If this level is broken, then the next support should be at the April 1st low of 92.55. If USD/JPY finally manages to muster some upside momentum, the rally could meet resistance at the 100-day SMA of 97 which is also a round number and psychologically significant level. Should that level be broken then the next resistance will be at the 50-day SMA at 99.15.