Daily Form April 23, 2010

Inter-market Technical Analysis using algorithmic pattern detection

FRIDAY APRIL 23, 2010       06:17 ET

As expressed here several times in the last few weeks, in the last 24 hours EUR/USD went down and tested $1.3280 - fell below it - and now as I am writing this - the Greek authorities have officially announced that they will be seeking a bailout from the EU/IMF.

From a technical perspective the weekly Ichimoku chart has provided excellent guidance to the plight of the EZ currency and as the arrow indicates the efforts to regain a foothold above $1.3650 failed and I suspect that this level will provide a strong overhead barrier for some time on the currency.

Rather we should be expecting a test of the $1.30 level - from which we could see a decent bounce - but longer term the $1.28 level is now on the horizon.

The chart showing the yield on the US 10 year Treasury is rather conflicted from an Ichimoku perspective. On the one hand the yield has bounced off the top of the cloud which suggests that a near term base in yields is in place, on the other hand there has been a negative crossover of the Kijun Sen level (indicated by the arrow).

For the time being the Treasury market is not suited to position traders and despite the massive supply coming next week, the effects of ZIRP (zero interest rate policy) are still supportive to banks playing the carry trade and there is always the possibility of a major flight to safety if (when?) any of the other Club Med states in the EZ continue to stumble towards the abyss.

The following chart, which is more for illustrative purposes than for having any specific recommendation attached, shows that the Shanghai market fell below the 3000 level in Asian trading on Friday and has fallen out of a clear buy channel as well as below the cloud formation.

The weekly chart for GBP/USD shows that sterling faces a critical test at the cloud level and my own bias is towards the short side - although I prefer to be short EUR/GBP rather than short EUR/USD at present. Goldman Sachs (GS) has advised clients to buy sterling on the notion that some have over-reacted to the possibility of a hung parliament after the upcoming election.

While I have no particular fondness for any of the political solutions being advocated by the UK parties - there is a sense in which gridlock will only prolong the agony before the UK addresses its dire public finances. However as I commented yesterday on Twitter when the rapid rise in rates on credit default swaps for all of the PIIG nations was breaking, the one thing that Gordon Brown may have got right was to keep Britain out of the EZ. It allowed the Bank of England to engage in massive QE operations that are simply not available to those slow track nations that fall under the control of the ECB. There is nothing like being able to print your own currency to forestall a sovereign debt crisis - at least in the near term - and until the bond vigilantes smell blood and a lack of a credible plan to work off a persistent structural deficit. But that may not be evident for another few weeks while the UK electorate is wooed by their obsequious political leaders.

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