TOP 5 HOT IDEAS

DATE: Tuesday August 13, 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 – NAB Business Confidence

FUNDAMENTALS
Business Confidence expected @ (9:30 PM ET / 1:30 GMT)
Our View – Neutral
Reason – Neutral
If NAB exceeds 1 = Buy AUD/USD
If NAB is less than -10 = Sell AUD/USD

This month’s Australian business confidence report is a tough call. There have been some upside surprises in Chinese economic data but domestic data has been weak. Business confidence is an important release but is only market moving if there is a large enough surprise. This month’s report should be traded reactively. If NAB confidence turns positive and exceeds 1, we expect the AUD/USD to rise. If NAB confidence falls to -10 or less, we expect the AUD/USD to slide. REACTIVE TRADE

TECHNICALS

9200 caps recovery
9100 still sound support
Consolidation continues

AUD/USD recovery has stalled at the 9200 level, but 9100 supports for now as the pair continues to build a bottom after a massive selloff of the past several months.

2. GBP/USD – UK CPI

FUNDAMENTALS
Consumer Prices expected @ 0.0% (4:30 AM ET / 8:30 GMT)
Our View – Bearish GBP
Reason – Sharp Drop in Shop Prices
If CPI rises by 0.2% or more = Buy GBP/USD
If CPI drops by -0.4% or more = Sell GBP/USD

U.K. consumer prices are scheduled for release tomorrow and inflationary pressures are expected to stagnate. Unfortunately the drop in shop prices reported by the British Retail Consortium points to the possibility of lower CPI. Therefore we feel that the data can be traded proactively or reactively. For those who choose to wait, if CPI rises by 0.2% or more, the GBP/USD can be bought for a move higher. If CPI drops by -0.4% or more, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

5600 near term top
5400 next support
Possible distribution

After a strong rally GBP/USD has run into a wall at the 1.5600 level and is likely to have made a near term top at that level. 1.5400 is near term support but a break lower could open the prospect of distribution back to 1.5200

3. EUR/USD – German ZEW

FUNDAMENTALS
ZEW Survey expected @ 39.9 (5 AM ET / 9 GMT)
Our View – Neutral
Reason – Neutral
If the ZEW survey exceeds 45 = Buy EUR/USD
If the ZEW survey is less than 35 = Sell EUR/USD

The German ZEW survey is a fairly important release for the EUR but one that is difficult to handicap. While German economic data has seen recent improves, the ECB also downgraded its GDP forecasts last week. As a result, we believe that it is probably best to trade the ZEW report reactively. If the ZEW survey exceeds 45, the EUR/USD can be bought for a quick move higher. If the ZEW survey drops to 35 or lower, the EUR/USD can be sold.

TECHNICALS

1.3250 near term support
1.3400 caps
Range trading continues

EUR/USD remains in a relatively tight range after the rejection at 1.3400 level with 1.3250 supporting any selloffs for now. A break below would open a test of the 1.3100 level.

4. USD/JPY – US Retail Sales

FUNDAMENTALS
Advance Retail Sales expected @ 0.3% (8:30 AM ET / 12:30 GMT)
Our View – Bullish USD
Reason – ICSC and Redbook report uptick in spending
If Retail Sales rises by 0.7% or more = Buy USD/JPY
If Retail Sales is flat or declines = Sell USD/JPY

According to the consensus forecast, economists expect consumer spending growth to slow but with the International Council of Shopping Centers and Johnson Redbook survey both reporting stronger sales, there is a reasonable chance of an upside surprise that could extend the greenback’s gains. More specifically, ISCS reported the strongest retail sales growth since January, which is part of the reason why we feel that tomorrow’s retail sales report can be traded proactively or reactively. For those who choose to wait, we would ideally like to see both the headline figure and spending less autos to increase at faster pace in the month of July but we believe that spending growth needs to exceed 0.7% to really boost USD/JPY. However if retail sales is flat or declines, USD/JPY could give up Monday’s recovery. PROACTIVE or REACTIVE TRADE

TECHNICALS

96.00 tested but still holds
97.00 must be taken out to relive downside bias
Break of 96.00 opens test of 95.00

USD/JPY continues to hold at the 96.00 level but the pair as it has found a small double bottom support but the pair needs to break above 97.00 to relieve the downside pressure.

5. USD/JPY and Nikkei

FUNDAMENTALS

With no additional noteworthy data on Tuesday, we want to take this opportunity to share with you one of our favorite charts of the Nikkei and USD/JPY. If you attend our Wednesday World Markets webinar, we talk about the relationship between these 2 instruments often. The chart above highlights the correlation between these 2 instruments and it suggests that USD/JPY’s recent struggle to rally has a lot to do with the sell-off in the Nikkei. Investors are nervous about buying stocks and their concerns have translated into weakness for USD/JPY, which is also considered a risk currency. If the Nikkei holds 13,000, USD/JPY has better chance of recovery but if the Japanese index breaks below this level, we could see USD/JPY test 95.