Daily FormNovember 19, 2009

Inter-market Technical Analysis using algorithmic pattern detection

THURSDAY NOVEMBER 19, 2009       05:37 ET

At the time of writing, there are certainly reasonable prospects for a sell-off in the US market today, but as stressed on several occasions recently the real focus will be on the FX markets and the likelihood that traders/banks will mount a rally from key support levels to provide the normal backdrop that is bullish for equities i.e. a slumping dollar.
Certainly the candlestick pattern on the S&P 500 cash index, over the last two sessions, is often seen at inflection points but maybe the 1122 level which represents the 50% fibonacci retracement will prove too strong a temptation for it not to be tested in the near term.

The Nikkei 225 lost further ground in Asian trading and closed at its lowest level since July and below the 9600 level which takes out a short term support level. As seen on the chart there are two further layers of likely support that will need to be tested but if they do not hold this market looks to be re-entering its default mode i.e. bearish.

The evidence in European forex trading on Thursday morning is pointing to some growing risk aversion and with the euro notably failing now on three attempts to move above the $1.50 level the attention is shifting to other key cross rates that are now being tested.
The AUDJPY, as seen on the daily chart below is at a key support/resistance level at 8190 and just above the 50 period EMA. If that fails to hold then 8050 looks like the next key uptrend level which would need to be tested. If that fails... well that would not be good news for those who have a lot of risk assets in their trading books.

The chart for GBPUSD reinforces the theme that key currencies are at a critical juncture.
The UK currency will not be helped by the following release this morning

Nov. 19 (Bloomberg) -- Britain’s deficit in October was the worst for the month since records began in 1993 as the longest recession on record ravaged tax revenue.

The 11.4 billion-pound ($18.9 billion) shortfall compared with a deficit of 130 million pounds a year earlier, the Office for National Statistics said in London today. The median of 17 forecasts in a Bloomberg News survey was for a 7 billion-pound deficit.

Seems like more QE will have to come to the rescue.