Macro risk analysis - Daily Form for April 18, 2011

Inter-market Technical Analysis using algorithmic pattern detection

MONDAY APRIL 18, 2011       08:45:00 GMT

In European trading on Monday morning (18th), the 240 minute chart for the S&P 500 futures shows that the index remains under some pressure but has so far managed to rally each time it reaches down to the 1300 level.

Noticeable too though, as discussed on Friday, is the failure to break back into the cloud formation above, suggesting that the 1320 level is proving to be strong resistance.

Once again the evolving dome formation is quite a notable characteristic of the formation in this time granularity window, and I shall stand by my view that this index needs to test lower levels at 1295 and perhaps 1280/5 during the course of the next few sessions.

EUR/USD should find some support at the $1.4280 level but it is also evident from both the cloud formation and the dotted line leading up through the lows evidenced on the 240 minute chart that this level is quite critical for the EZ currency.

Elections in Finland over the weekend have muddied the waters as far as continued support from the Finnish government for the new financial stability mechanism currently under discussion in Brussels, and the ongoing flip flop on whether Greece will re-structure its debt is providing a "wall of worry" for those long the euro.

As mentioned last week, even if EUR/USD holds key support, there are better reasons to be looking at short EUR/CHF positions.

France’s benchmark index the CAC 40 is revealing relative weakness in European trading on Monday morning.

A principal reason cited for the weakness is the relatively large exposure of French banks to Greek sovereign debt, although the situation for German banks is as, if not more, troublesome.

Support on the CAC 40 should be found at the 200 day EMA and readers are reminded that the exchange traded fund, EWQ, provides an opportunity to take a position on the MSCI index for French equities.

Yields on the five year US Treasury note have seen a slow process of attrition over the last few weeks despite concerns about the potential expiration of QE2 (could there be a QE2 supplementary?) and also evidence - at least in most other economies of the world, except (apparently!) the US, of inflationary pressures from commodity and other input costs.

There is still ample evidence that a lot of fund managers are "hiding out" in short term US government securities with the rate on very short term paper at less than 10 bps.

Many strategists, including PIMCO, have been touting a short position in UST’s, but so far the tide has been against them. In my estimation the continuation of mega generosity by the Fed is still acting as a major support for US government debt, and the seeking of safety amidst an overall risk on environment for equities and commodities, helps to illustrate the current split personality of capital markets.