TOP 5 HOT IDEAS

DATE: Wednesday August 28, 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 – Chinese Industrial Profits

FUNDAMENTALS
Chinese Industrial Profits expected @ (9:30 PM ET / 1:30 GMT)
Our View – Neutral
Reason – Neutral
If Profits Exceed 15.0% = Long AUD/USD
If Profits Grow by Less than 5% = Sell AUD/USD

Chinese economic data is notoriously difficult to predict but can have a meaningful impact on AUD/USD. We feel that industrial profits can only be traded reactively. If profits increase, we could see a further short squeeze in the AUD/USD. If profit growth slows, we could see a sell-off in the currency. REACTIVE TRADE

TECHNICALS

9000 holds
9050 still resistance
Break higher takes us for a test of 9100

The AUD/USD continues to consolidate around the 9000 which remains support for the pair. A break above 9050 failed but another run through that level could open a move towards 9100.

2. EUR/USD – German IFO Report

FUNDAMENTALS
German IFO expected @ 103.1 (4 AM ET / 8 GMT)
Our View – Bullish EUR
Reason – Stronger IFO, industrial production, factory orders and ZEW
If the IFO index exceeds 105 = Buy EUR/USD
If the IFO index is less than 101 = Sell EUR/USD

We have strong reasons to believe that the German IFO report will show an improvement in business confidence. The PMI index, factory orders, industrial production and the ZEW survey all increased, which is why we feel that the data can be traded proactively or reactively. For those who choose to wait, if the IFO index exceeds 105, the EUR/USD can be bought for an extension higher. If the index drops below 101, it can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

Another inside day
3450 still caps
3300 contains downside

The EUR/USD posted another inside day as the pair continues to consolidate its 3450-3300 range. A break either way could signal further direction ahead.

3. USD/HKD – Hong Kong Trade Balance

FUNDAMENTALS
Hong Kong Trade expected @ -45B (4:30 AM ET / 4:30 GMT)
Our View – Neutral
Reason – Neutral
If the Trade deficit is -54B or larger = Buy USD/HKD
If the Trade deficit is -40B or less = Sell USD/HKD

Trade numbers are important for many countries and Hong Kong is no exception. Unfortunately the data is difficult to handicap and therefore best traded reactively in our opinion. If the trade deficit widens to -54B or larger, USD/HKD can be bought for a move higher. If the trade deficit is -40B or less, USD/HKD can be sold. REACTIVE TRADE

TECHNICALS

7.7500 base remains
Tight consolidation
7.7600 caps the upside

Not much movement in the controlled USD/HKD pair with base at 7.7500 while 7.7600 caps the upside

4. USD/ZAR – South Africa Q2 GDP

FUNDAMENTALS
GDP expected @ 3.3% (5:30 AM ET / 9:30 GMT)
Our View – Neutral
Reason – Stronger Trade and Retail Sales but expectations are high
If GDP growth is 1% or less or larger = Buy USD/ZAR
If GDP growth is 3.5% or more = Sell USD/ZAR

Second quarter GDP figures are due from South Africa tomorrow morning and economists are looking for a significant pickup in growth. The 2 most important components of GDP are retail sales and trade – both of which improved in the second quarter. However markets expectations are very high and could therefore be difficult to beat, which is why we still feel the data is best traded reactively. If GDP growth is less than 1%, we expect USD/ZAR to rally. If GDP growth exceeds 3.5%, we expect USD/ZAR to weaken. REACTIVE TRADE

TECHNICALS

10.4000 caps upside
10.2000-10.4000 resistance
10.0000 support

USD/ZAR remains capped at the 10.4000 level as the 10.2000-10.4000 is proving stiff resistance while 10.000 supports

5. USD/JPY – Consumer Confidence

FUNDAMENTALS
Consumer Confidence expected @ 79 (10 AM ET / 14 GMT)
Our View – Bearish USD
Reason – IBD and UMich declined
If the index is 81 or higher = Buy USD/JPY
If the index drops to 78 or lower = Sell USD/JPY

We have strong reasons to believe that the U.S. Conference Board consumer confidence index declined in the month of August. According to similar surveys conducted by Investors Business Daily and the University of Michigan, sentiment deteriorated this month due in part to the decline in stocks and deterioration in U.S. data. As such, we feel this data can be traded proactively or reactively. If the index rises to 81 or higher, we expect USD/JPY to rally. If the index drops to 78 or lower, we expect USD/JPY to fall. PROACTIVE or REACTIVE TRADE

TECHNICALS

99.00 caps
98.00 holds
Key break of either side

USD/JPY continues to consolidate in the 99.00-98.00 zone as the pair remains mildly bid but facing resistance at the 99.00 level. A break of the zone either way creates possible near term direction of the pair.