Top 5 – 09.04.2013

*Top 5 Archive Members Only Top 5


DATE: Wednesday Sept 4, 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


PMI Manufacturing expected @ 0.5% (9:30 PM ET / 1:30 GMT)
Our View – Neutral
Reason – Weaker Retail Sales, Stronger Trade
If GDP growth exceeds 0.7% = Buy AUD/USD
If GDP growth is less than 0.4% = Sell AUD/USD

Australian Q2 GDP numbers are scheduled for release tomorrow and while this report should be a big market mover for the AUD, it is difficult to handicap this month. The 2 most important components of GDP are trade and retail sales but in the second quarter, the trade balance increased while retail sales growth slowed. As a result, we feel that this data is best traded reactively. If GDP growth exceeds 0.7%, we expect the AUDUSD to extend higher. If GDP growth is less than 0.4%, we expect AUD/USD to weaken. REACTIVE TRADE


9100 next in view
8900 strong support support
Break opens run to 9200

Aussie had a relative strength today and now looks to target the 9100 level with a break there opening up the move towards 9200.

2. GBP/USD – PMI Services

UK PMI Services expected @ 59.7 (4:30 AM ET / 8:30 GMT)
Our View – Bullish GBP
Reason – Sharp Improvement in PMI Mfg and Confidence
If UK PMI exceeds 61 = Buy GBP/USD
If UK PMI drops below 58 = Sell GBP/USD

We have strong reasons to believe that U.K. service activity improved in the month of August because manufacturing and construction activity accelerated while consumer confidence improved. This signals that the U.K. recovery is gaining momentum, a dynamic that should carry over to the service sector. As such we feel this data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 61 the GBP/USD can be bought for a quick move higher. If the UK PMI index drops below 58, the GBP/USD can be sold. PROACTIVE or REACTIVE TRADE


5600 rejected
5500 support
5400 deeper support

Cable made another foray into 5600 but was rejected once again and now remains tightly rangebound with 5500 near term support while 5400 is stronger level support.

3. EUR/USD – Eurozone Retail Sales

Eurozone Retail Sales expected @ 0.2% (5 AM ET / 9 GMT)
Our View – Bearish EUR
Reason – Weaker German and French Retail Sales
If Retail Sales exceed 0.5% = Buy EUR/USD
If Retail sales declines = 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 declined in both countries during the month of July, which is why we feel the data can be traded proactively or reactively. For those who choose to wait, if Eurozone retail sales rise by 0.5% or more, the EUR/USD can be bought for an extension higher. If retail sales declines, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE


3150 may be near term bottom
3200 resistance
3300 stiffer resistance

EUR/USD continued to drift lower but the 3150 level held and may be a near term bottom for now as the pair consolidates its losses. 3200 is near term resistance while 3300 is stiffer ceiling.

4. USD/JPY – U.S. Trade Balance

Trade Balance expected @ -$38.6B (8:30 AM ET / 12:30 GMT)
Our View – Bullish USD
Reason – Stronger ISM Manufacturing
If the Trade deficit is -$34 or smaller = Buy USD/JPY
If the Trade Deficit is -$39B or higher = Sell USD/JPY

We have good reasons to believe that the U.S. trade balance narrowed in July because manufacturing activity expanded at its fastest pace in 2 years with particular strength in export orders. Therefore we believe the trade balance report can be traded proactively or reactively. For those who choose to wait, if the Trade Deficit is -$34B or smaller, USD/JPY can be bought for a move higher. If the Trade Deficit is -$39B or larger, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE


1.0600 key resistance
1.0500 near term support
A break below opens run to 1.0450

1.0600 level remains the key upside cap for USD/CAD but if broken could quickly lead to a run towards 1.0700. 1.0500 offers support but a break there opens run to 1.0450.

5. USD/CAD – Bank of Canada Rate Decision

BoC Decision expected @ 1% (10 AM ET / 14 GMT)
Our View – No Trade
Reason – No Trade
If BoC grows more dovish = Buy USD/CAD
If BoC maintains current stance = No Trade

Wednesday is a busy day for the Canadian dollar with a central bank rate decision and trade numbers scheduled for release. Naturally the rate decision will be the more important event risk of the two and the deciding factor of whether 1.06 will be broken in USD/CAD. Economic data from Canada has been weak with the economy contracting 0.5% in June and growth slowing to 1.7% in Q2 from 2.2% in Q1. Manufacturing activity also contracted in July for the first time this year. Some of the weakness can also be attributed to temporary factors such as floods in Alberta and strikes in Quebec but there are also underlying issues in Canada’s economy. We would not be surprised if Bank of Canada Governor Poloz grew more cautious after having already notched down the central bank’s level of hawkishness at his first monetary policy meeting and if he is, USD/CAD can be bought for a move higher. If the BoC maintains its current stance, there is no clear trading opportunity in USD/CAD. REACTIVE TRADE


100.00 key level topside
98.50 deeper support

USD/JPY had another good day today ending up at 99.50 but the key level to break upside is the 100.00 figure while 98.50 is the near term support