TOP 5 HOT IDEAS

DATE: Monday August 19, 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. NZD/USD – New Zealand PMI Services

FUNDAMENTALS
PMI Services expected @ (6:30 PM ET / 22:30 GMT)
Our View – Bullish NZD
Reason – Stronger Business PMI
If PMI index exceeds 58 = Buy NZD/USD
If PMI index is 54 or lower = Sell NZD/USD

We have strong reasons to believe that service sector activity in New Zealand expanded in the month of July. There have been a number of positive surprises in NZ data and we believe this strength should also translate into strength for the service sector. Therefore we feel that the data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 58, we feel that the NZD/USD can be bought for a move higher. If the PMI index drops to 54 or lower, the NZD/USD can be sold for a move lower. PROACTIVE or REACTIVE TRADE

TECHNICALS

8140 key upside break
Uptrend continues
8000 near term support

The uptrend in the kiwi continues with the pair slowly making its way towards the 8100 figure. However, the true upside break would require a move above 8140 to overcome the double top resistance at 8100. 8000 provides near term support for now.

2. GBP/USD Rightmove House Prices

FUNDAMENTALS
Rightmove House Prices expected @ (7:01 PM ET / 23:01 GMT)
Our View – Neutral
Reason – Neutral
If House Prices grow by 1% or more = Buy GBP/USD
If House Prices drop by 1% or more = Sell GBP/USD

The U.K.’s Rightmove house price report is not a big market mover for the GBP/USD unless there is a significant surprise. Therefore the data should only be traded reactively. If House Prices grow by 1% or more, the GBP/USD can be bought for a move higher. If House Prices drop by 1% or more, the GBP/USD can be sold. REACTIVE TRADE

TECHNICALS

1.5650 caps rally
1.5750 key overhead resistance
1.5500 now support

Cable’s upward push has stalled above the 1.5650 level as the pair consolidates its recent gains. A push through that would put it on the path towards the key 1.5750 swing high. Meanwhile 1.5500 supports.

3. USD/JPY – Japanese Trade Balance

FUNDAMENTALS
Japanese Trade expected @ -773.B Trillion (7:50 PM ET / 23:50 GMT)
Our View – Neutral
Reason – Neutral
If Japanese Trade Deficit exceeds –Y900 billion = Buy USD/JPY
If Japanese Trade Deficit is –Y500B or less = Sell USD/JPY

Trade activity is very important to Japan but less so for its currency. We expect the deficit to widen because the Yen did not weaken in July and therefore we feel that the data is best traded reactively. If the Japanese trade deficit exceeds –Y900 billion, USD/JPY can be bought for a move higher. If the deficit narrows to –Y500B or smaller, USD/JPY can be sold. REACTIVE TRADE

TECHNICALS

97.00 still holds
98.00 topside resistance
Bias still bearish

USD/JPY stabilized at the 97.00 level but has failed to clear 98.00 to overcome the bearish bias that still persists. A break below 97.00 opens the run to test of 96.00.

4. AUD/USD – New Motor Vehicle Sales

FUNDAMENTALS
New Motor Vehicle Sales expected @ (9:30 AM ET / 1:30 GMT)
Our View – Neutral
Reason – Neutral
If sales exceed 8% = Buy AUD/USD
If sales decline by 1% or more = Sell AUD/USD

Australian new motor vehicle sales is not a big market mover for the AUD/USD unless there is a significant surprise. Therefore the data should only be traded reactively. If sales exceed 8% or more, the AUD/USD can be bought for a move higher. If sales decline by 1% or more, the AUD/USD can be sold. REACTIVE TRADE

TECHNICALS

9200-9300 corridor still caps
9100 near term support
Base building persists

AUD/USD continues to build its base near the 9100 level but the 9200-9300 overhead resistance remains tough zone to break through and only a move through that area would put it on a path towards recovery near the 9500 level.

5. EUR/USD and Gold

FUNDAMENTALS

With a relatively quiet economic calendar on Monday, we want to take this opportunity to highlight talk about the EUR/USD and Gold. Last week, some intraday swings in the EUR/USD were attributed to the move in gold and we thought it would be interesting to show a chart. The daily chart above shows how EUR/USD and gold have a loosely positive correlation in which a rise in the EUR/USD (white line) has coincided with the rise in gold (orange line). However as we all know, past performance is not indicative of future results and we saw a bit of that in August when gold did not rally alongside the EUR/USD. The same was true on Monday when the EUR/USD dropped slightly and gold continued higher. The reason why a correlation exists at all is because both are viewed as anti-dollar trades. Gold is priced in dollars and U.S. factors generally drive the price action of the EUR/USD except when euro optimism or concerns are so severe that they overshadow the broader dollar movement. We’ve seen that in the past and may see that again in the future, so something to keep in mind.