Daily Form January 20, 2010

Inter-market Technical Analysis using algorithmic pattern detection

WEDNESDAY JANUARY 20, 2010       06:38 ET

In my commentaries in late December I expressed the view that the euro would eventually test the $1.4180 level which represented a key support level based upon the Ichimoku cloud pattern evident on the weekly charts at that time.
In trading in Europe on Wednesday morning we have pierced that level, and as anxieties about the situation in Greece appear to be increasing, the currency now seems headed - in the intermediate term - for a test of the $1.38 level which as can be seen on the chart is the next level of cloud support moving forward. Meanwhile, sterling is showing some resilience at present and while I have scratched my long EUR/GBP position, I would keep an eye on the UK currency over the next 24 hours for a potential setup of selling the pound against the US dollar as well, rather than against the Eurozone currency.

The Australian dollar is at a key support level against the US dollar as there is a formation which suggests that the current level is the neckline of a head and shoulders pattern on the 240 minute chart as well as the base of the green cloud formation.
As this is being written the Aussie currency appears to be slicing through this level of support which could presage a more substantial correction. Across the FX market this morning there are growing signs of risk aversion patterns, which could be a precursor to a more defensive posture in the US equity market as the day progresses.

Another of my recent anticipations with respect to the Hong Kong market was almost fulfilled in Asian trading as the Hang Seng is now set for a test of the 21000 level. The focus is very much on the growing evidence that the Chinese authorities are beginning to tighten monetary conditions as a precautionary move towards bubbles that are emerging in real estate in Shanghai and Hong Kong.

IYM, an exchange traded fund which represents the basic and industrial materials sector is showing evidence of dissipating momentum and the risk/reward ratio, I would suggest, favors looking for an advantageous entry on the short side in coming sessions.