TOP 5 HOT IDEAS
DATE: Friday August 16, 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. EUR/USD – Eurozone Trade Balance
FUNDAMENTALS
Trade Balance expected @ (5 AM ET / 9 GMT)
Our View – Bullish EUR
Reason – Stronger French and German Trade Numbers
If Trade Balance exceeds 16B = Buy EUR/USD
If Trade Balance drops to 13.5B = Sell EUR/USD
Eurozone trade balance numbers are scheduled for release on Friday and we have strong reasons to believe the data will be good. Whenever we look to assess Eurozone data, we always turn to releases of the region’s 2 largest economies – Germany and France. In June, Germany reported a larger trade surplus and France a smaller deficit, which points to a stronger EZ release. Therefore we feel that the data can be traded proactively or reactively. For those who choose to wait, if the trade balance exceeds 16B, we feel that the EUR/USD can be bought for a move higher. If the trade balance drops to 13.5B or lower, the EUR/USD can be sold for a move lower. PROACTIVE or REACTIVE TRADE
TECHNICALS
Massive reversal
1.3400 in sight
1.3200 holds
The EUR/USD staged a massive reversal as it rebounded off the 1.3200 level and now look ready to retest the 1.3400 highs. A break through there opens up a run to 1.3500.
2. USD/CAD – Manufacturing Sales
FUNDAMENTALS
Manufacturing Sales expected @ 0.3% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Manufacturing Sales drop -0.3% or more = Buy USD/CAD
If Manufacturing Sales rise by 0.8% or more = Sell USD/CAD
Canada’s manufacturing sales report is not a huge market mover unless there is a big surprise. Therefore the data can only be traded reactively. If Manufacturing Sales drop -0.3% or more, USD/CAD can be bought. If Manufacturing Sales rise by 0.8% or more, USD/CAD can be sold. REACTIVE TRADE
TECHNICALS
1.0250 remains support
1.0400 caps the upside
Break below put it on path towards test of 1.0100
USD/CAD continues to be hemmed in by the 1.0400 1.0250 range as it compresses in volatility, but a break below 1.0250 opens a run to 1.0100
3. USD/JPY – Housing Starts and Building Permits
FUNDAMENTALS
Housing Starts expected @ 7.7% & Building Permits expected @ 2.9% (8:30 AM ET / 12:30 GMT)
Our View – Neutral
Reason – Neutral
If Housing Starts grow by 8% or more AND Building Permits grow by 5% or more = Buy USD/JPY
If Housing Starts grow by 3% or less AND Building Permits fall by 1% or more = Sell USD/JPY
U.S. Housing Starts and Building Permits are not huge market movers for the U.S. dollar but interesting nonetheless. The data should only be traded reactively and only if there is a big surprise. If Housing Starts grow by 8% or more AND Building Permits grow by 5% or more, we expect USD/JPY to rally. If Housing Starts grow by 3% or less AND Building Permits fall by 1% or more, we expect USD/JPY to weaken. REACTIVE TRADE
TECHNICALS
98.00 given
97.00 now in view
96.00 key test of support
USD/JPY flamed out in a shooting star pattern as it reversed off the 98.00 level and now looks markedly bearish with 97.00 in view and a possible test of 96.00 on a longer term basis
4. USD/CHF – University of Michigan Consumer Confidence
FUNDAMENTALS
UMich expected @ 85.2 (9:55 AM ET / 13:55 GMT)
Our View – Bearish USD
Reason – IBD/TIPP Declines, Stocks Decline
If the UMich index exceeds 87 = Buy USD/CHF
If the UMich index drops below 83 = Sell USD/CHF
We have good reasons to believe that the consumer confidence in the U.S. deteriorated last month and that the University of Michigan index will fall. A similar survey conducted by Investor’s Business Daily found sentiment weakening while stocks declined in August. As a result we feel that this data can be traded proactively or reactively. For those who chose to wait, if the UMich index exceeds 87, USD/JPY can be bought for a move higher. If the UMich index drops below 83, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE
TECHNICALS
9200 next downside target
9400 caps upside
Break below put 9000 in view
USD/CHF also reversed massively tracing out a very bearish candle with 9200 now the key support level in view while 9400 caps the upside.
5. US 10 Year Yield and USD/JPY
FUNDAMENTALS
With no additional data worth talking about today, we want to take this opportunity to highlight one of the biggest stories of the day, the persistent rise in U.S. yields. The chart above compares the performance of 10 Year Treasury yields with USD/JPY. 10 year yields rose to its highest level since August 2011 today and while there is a positive correlation between these 2 instruments, the latest rise in yields has not benefitted USD/JPY. Judging from this chart alone, there will be times when the correlation breaks down and it could take weeks before it resumes. Eventually it should and in this case, we believe that it will be USD/JPY catching up to yields and not vice versa.
