TOP 5 HOT IDEAS

DATE: Friday April 26, 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 Trade Balance

FUNDAMENTALS
Trade Balance expected @ 470M (6:45 PM ET / 22:45 GMT)
Our View – Bearish NZD
Reason – Sharp decline in Business PMI index
If Trade Balance exceeds 500M = Buy NZD/USD
If Trade Surplus Drops to 375M or lower = Sell NZD/USD

We have strong reasons to believe that New Zealand’s trade surplus will miss expectations this evening. The business PMI index which measures manufacturing activity plunged with specific weakness in new orders, which is directly related to trade activity. Therefore we believe the data can be traded proactively or reactively. For those who choose to wait, if the trade balance exceeds 500M, the NZD/USD can be bought for a move higher. If the Trade Surplus drops to 375M or lower, the NZD/USD can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

8550 caps move for now
8450 still near term support
8600 remains key resistance

The kiwi rally ran out of steam at the 8550 level and the pair is now consolidating its recovery move with 8450 operating a near term support while 8600 is much steeper resistance.

2. USD/JPY – BoJ Rate Decision and Semi-Annual Outlook Report

FUNDAMENTALS
BoJ Semi Annual Outlook Report expected @ (11 PM ET / 3 GMT)
Our View – Neutral
Reason – Neutral
If BoJ accelerates time frame for reaching 2% target = Buy USD/JPY
No major change in BoJ policy = No Trade

Tonight is a big night for USD/JPY. Aside from the Bank of Japan’s monetary policy announcement, BoJ Governor Kuroda is speaking, consumer prices are scheduled for release and the central bank will be releasing its semi-annual outlook for the economy. The central bank is not expected to increase stimulus but they will be releasing their GDP and inflation forecasts. What we will be looking for are the BoJ estimates on when 2% inflation will be achieved and the sooner they expect it to occur, the more aggressively they will need to ease. The event risk is best traded reactively. If the BoJ simply expands their inflation forecasts and boosts their GDP forecasts, it may not be enough to boost USD/JPY, so no trade in that case. However if central bank Governor Kuroda sets expectations for additional easing in the months to come or accelerates their timing for reaching their 2% target, USD/JPY can be bought for a move higher. REACTIVE TRADE

TECHNICALS

99.00-99.50 corridor still holds
98.50 supports downside
100.10 open the run higher

USD/JPY continues to remain in equilibrium in the 99.00-99.50 corridor as neither bulls nor bears can move the pair, but perhaps tonight the volatility compression may end. 98.50 is key downside support while the 100.10 level breaks the upside wide open.

3. EUR/CHF – KoF Leading Indicators

FUNDAMENTALS
KoF Leading Indicators expected @ 0.98 (3 AM ET / 8 GMT)
Our View – Neutral
Reason – Neutral
If the KoF index drops to 0.95 or lower = Buy EUR/CHF
If the KoF index exceeds 1.00 = Sell EUR/CHF

Switzerland’s KoF leading indicators report is not a huge market mover for EUR/CHF unless there is a significant surprise. As a result, the data is best traded reactively. If the KoF index drops to 0.95 or lower, EUR/CHF can be bought for a quick move higher. If the index exceeds 1.0, EUR/CHF can be sold. REACTIVE TRADE

TECHNICALS

Remains near 2300 but off highs
2350 caps upside
2250 supports downside

Having broken higher EUR/CHF remains near its highs but the 2350 level caps the upside for now. The pair has support at 2250 and a break above 2350 opens a retest of 2400-2450 highs set earlier in the year

4. USD/JPY – Q1 U.S. GDP

FUNDAMENTALS
Q1 GDP @ 3% (8:30 AM ET / 12:30 GMT)
Our View – Bearish USD
Reason – Weaker Retail Sales and Trade
If GDP growth rises by 3.2% or more = Buy USD/JPY
If GDP growth is less than 2.3% = Sell USD/JPY

We have good reasons to believe that U.S. GDP growth will fall short of expectations. In the fourth quarter, the economy expanded by only 0.4% but in the first quarter, growth is expected to hit 3%. A large part of the growth is expected to come from inventories and personal consumption – the rise in inventories represents a rebound after droughts at the end of last year caused a pullback in farm inventories. However with retail sales and trade numbers weakening from Q4 to Q1, we are skeptical about the strength of U.S. GDP growth in the first 3 months of 2013. Three percent growth will be hard to beat and if the GDP surprises to the downside, it could cap the rally in USD/JPY. So we believe the data can be traded proactively or reactively. For those who choose to wait, if GDP growth exceeds 3.2%, USD/JPY can be bought for a quick move higher. If GDP growth is less than 2.3%, USD/JPY can be sold. PROACTIVE or REACTIVE TRADE

TECHNICALS

99.00-99.50 corridor still holds
98.50 supports downside
100.10 open the run higher

USD/JPY continues to remain in equilibrium in the 99.00-99.50 corridor as neither bulls nor bears can move the pair, but perhaps tonight the volatility compression may end. 98.50 is key downside support while the 100.10 level breaks the upside wide open.

5. USD/MXN – Trade Balance

FUNDAMENTALS
Trade Balance @ 391M (9 AM ET / 13 GMT)
Our View – Neutral
Reason – Neutral
If the Trade Surplus rises to 100M or less = Buy USD/MXN
If the Trade Surplus exceeds 400M = Sell USD/MXN

Mexico’s monetary policy announcement and trade numbers are scheduled for release tomorrow morning. We think the trade balance is more important because the central bank of Mexico is not expected to change monetary policy and trade numbers are expected to improve significantly. However the data is difficult to handicap and therefore best traded reactively. If Mexico’s trade surplus rises to 100M or less, USD/MXN can be bought for a move higher. If the trade surplus exceeds 400M, USD/MXN can be sold. REACTIVE TRADE

TECHNICALS

12.10 forms a higher low
12.30 caps upside near term
Break of 12.05 turns bias very bearish

USD/MXN is making higher lows near the 12.10 level with 12.30 the near term resistance in view, but a break of 12.05 lows would send a very bearish signal for the pair suggesting further downside pressures.