Daily Form October 25, 2010

Inter-market Technical Analysis using algorithmic pattern detection

MONDAY OCTOBER 25, 2010       11:09:00 GMT

The Shanghai market has been on a rising trajectory for several sessions and continued along this path in Asian trading with 2.6% gain pushing the index to its highest level since April 19th. As highlighted on the daily chart below there would seem to be an imminent likelihood of a golden cross as the 50 day EMA appears to be set to cross above the 200 day EMA from below.

Below are some thoughts arising from the G20 meetings in South Korea which I posted to my Twitter account during the last 24 hours.

1. Even if denied the clear aim of US monetary policy is to weaken USD and as always traders are smart not to "fight the Fed"
2. Whatever the G20 communique may or may not have said the message that FX traders got was to keep selling the dollar
3. Simple equation China makes iPads which creates real jobs - US exports dollars and UST’s which do not require creation of many jobs at all
4. In essence the latest incarnation of "Don’t fight the Fed" especially when coupled with the new 2010 mantra "Don’t fight the PBOC" translates into higher prices for equities and commodities.
5. It is important to decide on what metric or basis to use in assessing the appreciation in equities. Surely not against the US dollar as that is being deliberately depreciated, and against other currencies and a basket of commodities the nominal gains in prices of US equities really aren’t that impressive.

Updating my comments from Friday, EUR/JPY has been clearly confined by the descending trendline through the highs drawn on the 60 minute chart below and indicated is a near term target of approximately 112.50

The Hang Seng Index, inspired and corroborated by the vigor of the Chinese markets, has reached exactly to the 62% retracement level from the high/low visible on the longer term weekly chart.

While nearly all other major global equity markets continue to move forward, benefiting from the abundance of liquidity being provided (or expected) from the Fed’s generosity, the Nikkei 225, as has been the case for an extended period, looks, from a technical perspective to be the weakest index.

It was reported earlier that major Japanese manufacturers are now contemplating a 70 handle on the USDJPY rate of exchange and, with the yuan pegged to the dollar, it is becoming increasingly apparent that the Japanese economy’s dependence on exports is under serious threat.