TOP 5 HOT IDEAS

DATE: Monday August 5, 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 – Retail Sales

FUNDAMENTALS
Retail Sales expected @ 0.3% (9:30 PM ET / 1:30 GMT)
Our View – Bearish AUD
Reason – Decline in confidence, marginal improvement in jobs
If Retail Sales rise by 0.6% or more = Buy AUD/USD
If Retail Sales drop by -0.1% or more = Sell AUD/USD

We have good reasons to believe that Australian retail sales will fall short of expectations. Economic data from Australia in general has been weak with confidence falling sharply. The labor market has been virtually stagnant and while PMI services, our favorite leading indicator for retail sales will not be released until after retail sales, we still feel that Australian consumer spending numbers can be traded proactively or reactively. For those who choose to wait, if retail sales rise by 0.6% or more, the AUD/USD can be bought for a reversal higher. However if it drops by 0.1% or more, the AUD/USD can be sold for an extension lower. PROACTIVE or REACTIVE TRADE

TECHNICALS

8900 broken but retaken
8850 key support
9000 new resistance

The crumble in Aussie took it below the 8900 figure, but the unit bounced and actually held up against the other commdollars suggesting that selling may be coming to an end. 9000 now caps upside while 8850 is support

2. NZD/USD – China’s HSBC Services PMI

FUNDAMENTALS
HSBC Services PMI @ (9:45 PM ET / 1:45 GMT)
Our View – Neutral
Reason – Neutral
If PMI index exceeds 54 = Buy NZD/USD
If the PMI index drops to 50 or lower = Sell NZD/USD

Chinese economic data is notoriously difficult to handicap and HSBC’s PMI services report is no exception. Based on other Chinese data, the economy is slowing gradually but a larger surprise is needed to move the NZD/USD. Therefore we believe the data is best traded reactively. For those who choose to wait, if the PMI index exceeds 54, the NZD/USD can be bought for a move higher. If the PMI index drops to 50 or lower, the NZD/USD can be sold. REACTIVE TRADE

TECHNICALS

Back to 7800
8000 now resistance
Testing lower end of range

The kiwi is now testing the lower end of the range as it probes the 7800 level while 8000 is now the new resistance.

3. GBP/USD – UK PMI Services

FUNDAMENTALS
PMI Services expected @ 57.1 (4:30 AM ET / 8:30 GMT)
Our View – Bullish GBP
Reason – Stronger Consumer Confidence and PMI Manufacturing
If the PMI index exceeds 59 = Buy GBP/USD
If the PMI index drops to 55 or lower = Sell GBP/USD

The UK’s PMI Manufacturing index is scheduled for release tomorrow and we believe the data will surprise to the upside. Not only has there been a big improvement in consumer confidence but the manufacturing PMI index also increased. The data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 59, the GBP/USD can be bought. If the index drops to 55 or lower, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

5300 challenged
Sharp rebound from 5100
5400 key to the topside

Cable staged a sharp recovery after several days of selloffs and has now challenged the 1.5300 level as it tries to make it back to the key 1.5400 level.

4. EUR/USD – Eurozone Retail Sales

FUNDAMENTALS
Eurozone Retail Sales expected @ -0.5% (5 AM ET / 9 GMT)
Our View – Bearish EUR
Reason – Lower German and French Retail Sales
If Eurozone Retail Sales exceeds 0% = Buy EUR/USD
If Eurozone Retail Sales drops by -0.8% or more = Sell EUR/USD

Eurozone Retail Sales 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. Retail sales in both countries plunged in the month of June. The data can therefore be traded proactively or reactively. For those who choose to wait, if Eurozone retail sales rise by 0% or more, the EUR/USD can be bought for an extension higher. If retail sales drops by -0.8% or more, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

3300 still caps
3200 support
Break of 3350 opens run to upside

The 3300 still remains a tough zone for EUR/USD to overcome as the pair continues to probe higher supported by the 3200 level. A break above 3350 opens run to a test of swing highs at 1.3400

5. USD/JPY – US ISM Non-Manufacturing

FUNDAMENTALS
US ISM Non-Manufacturing expected @ 53 (10 AM ET / 14 GMT)
Our View – Neutral
Reason – Lower Non-farm Payrolls but Sharp Rise in ISM Manufacturing
If ISM exceeds 55 = Buy USD/JPY
If ISM drops below 51 = Sell USD/JPY

The US’ ISM non-manufacturing report is normally a big market mover for the U.S. dollar but this month’s release is watered down by the earlier release of non-farm payrolls. Payroll growth slowed in the month of July while manufacturing activity accelerated, making this month’s NFP release a tough call. As such we feel that the data should be traded reactively. If the ISM index exceeds 55, USD/JPY can be bought for a continued rally. If it drops to 51 or lower, USD/JPY can be sold.

PROACTIVE or REACTIVE TRADE

TECHNICALS

100.00 fails again
98.50 now support
Break below opens run to 97.00

USD/JPY failed at the 100.00 level again and the sharp turn lower suggests that the pair could test support at 98.50 with a potential break there leading to a run to 97.00