TOP 5 HOT IDEAS

DATE: Monday July 8, 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 Trade Balance

FUNDAMENTALS
Japanese Trade Balance expected @ -Y902.1B (7:50 PM ET / 00:50 GMT)
Our View – Neutral
Reason – Neutral
If Japan’s Trade Deficit exceeds –Y1 trillion = Buy USD/JPY
If Japan’s Trade Deficit is -Y700B or less = Sell USD/JPY

We do not expect any major changes in Japan’s trade balance for the month of May because USD/JPY hit a high of 103.74 that month before settling back below 100. The data is best traded reactively. If Japan’s trade deficit exceeds –Y1 trillion, USD/JPY can be bought for a move higher. If the trade deficit shrinks to –Y700B or lower, USD/JPY can be sold for a potential move lower. REACTIVE TRADE

TECHNICALS

101.00 taken out
102.50 next resistance level
100.00 now new support

The move through the 101.00 level put USD/JPY firmly on a bullish path and the pair sees little upside resistance until the 102.50 level. Meanwhile 100.00 now becomes the new support

2. EUR/CHF – Swiss Unemployment Rate

FUNDAMENTALS
Swiss Unemployment expected @ 3.2% (1:45 AM ET / 5:45 GMT)
Our View – Neutral
Reason – Neutral
If Switzerland’s unemployment rate is 3.3% or higher = Buy EUR/CHF
If Switzerland’s unemployment rate is 3.1% or less = Sell EUR/CHF

No major changes are expected in Switzerland’s unemployment rate so the data is best traded reactively. If Switzerland’s unemployment rate is 3.3% or higher EUR/CHF can be bought for a move higher. If the unemployment rate drops to 3.1% or lower, EUR/CHF can be sold. REACTIVE TRADE

TECHNICALS

2300-2400 continues to contain
Consolidation persists
Break of either side opens up directional moves

EUR/CHF continues to consolidate in a narrow 2300-2400 band as range conditions persist, but a break on either side of the range could be start of longer directional move.

3. EUR/USD – German Industrial Production

FUNDAMENTALS
German IP expected @ -0.5% (6:00 AM ET / 10:30 GMT)
Our View – Bearish EUR
Reason – PMI declined, new orders declined
If German IP grows by 0.1% or more = Buy EUR/USD
If German IP falls by -0.7% or more = Sell EUR/USD

We have good reasons to believe that German industrial production declined in the month of May. According to the latest PMI numbers, manufacturing activity contracted at a faster pace with new orders declining. Therefore the data can be traded proactively or reactively. For those who choose to wait, if industrial production grows by 0.1% or more, we expect the EUR/USD to rally. If industrial production falls by -0.7% or more we expect the EUR/USD to decline. PROACTIVE or REACTIVE TRADE

TECHNICALS


2800 barely holds
2750-2800 key long term support
2950 caps upside

The euro just barely holds above the 1.2800 level but a test of the long term lows near the 1.2750-1.2800 level are in the offing and a break there could open a move all the way to 1.2500.

4. USD/CAD – Canadian Building Permits

FUNDAMENTALS
Building Permits @ -5% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Canadian Building Permits fall by -7% or more = Buy USD/CAD
If Canadian Building Permits fall by -2% or less = Sell USD/CAD

Canadian building permits are not a huge market mover for the Canadian dollar unless there is a big surprise. Therefore the data can only be traded reactively. If Building Permits fall by 7% or more, USD/CAD can be bought for an extension higher. If Canadian Building Permits fall by 2% or less, USD/CAD can be sold. REACTIVE TRADE

TECHNICALS

1.0600 probed to upside
Break of 1.0500 fails
A break above 1.0600 opens run to 1.0800

USD/CAD continues to defy the bears and after some time consolidating above the 1.0500 now looks ready to probe the 1.0600 level with a break there creating the prospect of a move towards 1.0700-1.0800 corridor.

5. AUD/USD and Gold

FUNDAMENTALS

With a relatively quiet global economic calendar on Monday, we want to take this opportunity to highlight the recent correlation of AUD/USD and gold. Both instruments have been hit hard by U.S. dollar strength and are nearing key support levels. If gold prices break below $1200 an ounce, it will be very difficult to the AUD/USD to hold 90 cents. Even at it current rates, AUD/USD appears to be due for a catch-up move with gold. Investors should watch this relationship closely.