Daily Form January 27, 2011

Inter-market Technical Analysis using algorithmic pattern detection

THURSDAY JANUARY 27, 2011       10:26:00 GMT

Standard & Poors has reduced its sovereign credit rating on Japan from AA to AA- and there was an immediate upward spike in USD/JPY to 83.25 as evidenced on the 240 minute chart below.
As indicated the spike violated a key down trend line and the suspicion is strong that this will need to be retested soon. In coming hours I shall be getting long USD/JPY on any significant pullbacks.

Longer term the question for global investors who are heavily committed to the yen and to JGB’s, which includes especially the Chinese central bank, must be just how likely is it that this credit rating will continue to erode and lead to funding problems for the Japanese government? It is worth restating that Japan has, by far, the highest debt/GDP ratio of any of the "richest" nations.

The Mumbai exchange sold off going into the close and has now registered a new multi-period intraday low and, quite significantly, has closed below the 200 day EMA level.

As part of more subdued animal spirits with respect to the BRIC economies the Bovespa index in Brazil seems likely to retest its 200 day EMA in coming sessions.

The 240 minute chart for GBP/USD is revealing the fragile nature of the rebound/squeeze on a lot of short selling which arose earlier this week after the UK government released its troubling Q1, 2010 GDP initial estimate of negative 0.5%.

I maintain the view expressed here recently that an intermediate term target of $1.5650 is quite probable, and my hunch is that once the trend line illustrated is broken there could be an avalanche of selling. But patience is a virtue when trading sterling, so the advice is not to become too zealous until there are unmistakable rumblings of an impending avalanche.


The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions.
None of these setups should be seen as specifically opportune for the current trading session.
For a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm

INP  iPath MSCI India Index  

INP, which tracks the MSCI India index, has been featured in these columns recently and the drop below the 200 day EMA on the sector fund has now been reinforced by today's close on the Mumbai exchange as discussed above.

IDX  Market Vectors Indonesia ETF  

IDX, which tracks Indonesian equities, is behaving erratically and in my estimation draws attention to the more anxious tone which is overshadowing the confidence level of the more adventurous asset allocators in emerging markets.