Daily Form November 20, 2010

Inter-market Technical Analysis using algorithmic pattern detection

FRIDAY NOVEMBER 12, 2010       11:23:00 GMT

There have been many market moving developments during Asian and European trading, the two most noteworthy being the following:

1. Anxiety about stamp duty tax caused a late plunge in China with the Shanghai exchange closing down more than 5% and the Hang Seng giving back 2%
2. The EU "clarified" remarks by the German chancellor - showing that she is all bark and no bite - which has caused a panic of short covering in all of the euro cross rates and motivated the prop trading desks to buy oversold Irish and Portuguese bonds at bargain basement prices.

The combined effect on the S&P 500 futures has been to break below the channel discussed here yesterday and then rally back above 1200 with a possibility that we can make further progress to the top of the channel today. However the level indicated by the arrow will be a significant resistance level.

There is a veritable panic of short covering in EUR/USD this morning and it is causing a rapid rise in all euro cross rates.
Selling EUR/GBP will become more appealing as the EZ currency continues its climb.

Here again is a comment from late October which is now reinforced by the highlighted gravestone doji candlestick

CEW, which is an ETF marketed under the moniker Wisdom Tree Dreyfus Emerging Currency, seeks to achieve total returns reflective of both money market rated in selected emerging market countries available to foreign investors and changes to the value of these currencies relative to the U.S. dollar.

A short position would be a recommendation for those with a longer term holding period perspective.

Yesterday I suggested that AUD/JPY would head back to 81.80, but as the chart shows one should never underestimate the degree of damage that can be done to this cross rate when there is any negative news involving the Chinese market.

Now 81.80 looks like it could provide overhead resistance on the sharp reversal.