Daily Form June 22, 2010

Inter-market Technical Analysis using algorithmic pattern detection

TUESDAY JUNE 22, 2010       06:30 ET

The S&P 500 performed as suggested here yesterday with a classic gap and trap move designed to fade the enthusiasm regarding the PBOC announcement - which in the big scheme of things, and on more time to digest the implications, may not be as momentous as some commentators have claimed.

In electronic trading during the European session this morning the mini futures contract for September is continuing to erode as the chart below reveals. An ambitious but reasonable target for trading today would be 1093, and if that fails then 1080/1085 is back in play - which would be troubling for those of a bullish persuasion.

Obeserving the EUR/USD currency pair this morning the break of a clear uptrend line provided a signal for new shorting opportunities. The near term target for scaling out 50% of the position would be 1.2205 and the remaining 50% could remain, on a trailing stop loss basis, with a target of $1.2150 as indicated by the arrow on the chart.

I have discussed the unusual relationship between the USD/JPY exchange rate and the animal spirits previously. The fact that the Japanese yen is strengthening quite considerably as this is being written, and approaching a test of the fairly critical level around 90.40, suggests that today could be quite consequential for US equities and risk assets in general. The bulls will have to tweak the algos to protect this level today as a definitive breakdown below this level would be bearish for equities and FX carry trade inspired plays in general.

Also worth monitoring is the AUD/JPY rate which is currently 140 pips below where I established the short position initiated and discussed here yesterday. The current longer term target for the Aussie/yen cross is 77.60