Top 5 09.23.13

*Top 5 Archive Members Only Top 5


DATE: Monday Sept 23, 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 Flash PMI

HSBC Flash PMI expected @ 50.9 (9:45 PM ET / 1:45 GMT)
Our View – Neutral
Reason – Neutral
If the PMI index exceeds 51.5 = Buy AUD/USD
If the PMI index is less than 50 = Sell AUD/USD

Chinese manufacturing PMI numbers can have a big impact on the AUD because China is Australia’s number one trade partner. Given the vulnerability of the AUD rally, the currency can be particularly sensitive to incoming data. Since Chinese economic reports are difficult to handicap, we feel they are best traded reactively. If the PMI index exceeds 52, meaning that Chinese manufacturing activity increased in the month of May, the AUD/USD can be bought for an extension higher. If the index drops below 51.5 on the other hand, it would be negative for the AUD and the currency could tumble as a result. REACTIVE TRADE


9500 Top out?
9350 key support
Break opens return to 9200

The Aussie may have put in a near term top at the 9500 level after a very strong rally. The pair is now correcting to 9400 but must hold 9350 or open the possibility of drifting back towards 9200 breakout level.

2. USD/SGD – Singapore CPI

CPI expected @ 0.8% (1 AM ET / 5 GMT)
Our View – Neutral
Reason – Neutral
If CPI growth is 0.2% or less = Buy USD/SGD
If CPI growth exceeds 1% = Sell USD/SGD

Singapore’s consumer price report is due for release on Monday and the data is best traded reactively. Inflationary pressures are expected to increase and if economists are right and CPI rises by 1% or more, we expect USD/SGD to sell-off. If CPI growth is less than 0.2%, we expect USD/SGD to rise. REACTIVE TRADE


2400 Double bottom support
2500 caps upside
Break opens run to 2250

USD/SGD is testing the support at the 2400 level with 2500 now near term resistance. A break below could open a more severe downmove towards 2250.

3. EUR/USD – Eurozone Composite PMI

Eurozone Composite PMI expected @ 52.2 (4 AM ET / 8 GMT)
Our View – Bearish EUR
Reason – Weaker Industrial Production and Factory Orders
If the PMI index exceeds 53 = Buy EUR/USD
If the PMI index is less than 51 = Sell EUR/USD

We have good reasons to believe that the Eurozone PMI index could surprise to the downside given the drop in industrial production and factory orders. Therefore we feel that the data can be traded proactively or reactively. For those who choose to wait, if the PMI index exceeds 53, the EUR/USD can be bought for a move higher. If the index drops below 51, the EUR/USD can be sold. PROACTIVE or REACTIVE TRADE


3500 support holds
Resistance ahead of 3600
3450 key hold

The EUR/USD encountered resistance above the 3500 level but so far continues to hold support at 3500. A break below the 3450 breakout zone would negate the current upside breakout move.

4. USD/MXN – Mexico Retail Sales

Retail Sales expected @ (9AM ET / 13 GMT)
Our View – Neutral
Reason – Neutral
If Spending drops by -2% or more = Buy USD/MXN
If Spending rises by 1% or more = Sell USD/MXN

Mexico’s retail sales report is an important one for USD/MXN but the data is difficult to handicap and therefore best traded reactively. If retail sales drops by -2% or more USD/MXN can be bought for a move higher. If spending rises by 1% or more, USD/MXN can be sold. REACTIVE TRADE


12.5000 finds support
13.0000 caps upside
12.0000 deeper support

The USD/MXN has found double bottom support at the 12.500 level. A break below could open a run towards 12.000 while 13.000 caps upside for now.

5. EUR/USD and DAX


You may have heard that currencies take their cue from equities and while this is true some of the time, we have seen the relationship breakdown over the past year. More recently however the EUR/USD and the German DAX have been moving in lockstep, representing an improved outlook for the Eurozone and global economy. The German DAX rose to its strongest level ever last week and while we don’t expect the EUR/USD to go anywhere near its record high, if stocks continue to rise, it could take the currency pair to its year to date high above 1.36. If stocks fall, the correlation between these 2 instruments suggests that EUR/USD will most likely tumble in lockstep.