Macro risk analysis - Daily Form for April 19, 2011

Inter-market Technical Analysis using algorithmic pattern detection

TUESDAY APRIL 19, 2011       10:29:00 GMT

In European trading this morning the 240 minute chart for the S&P 500 futures shows that the index has barely budged from its close at the end of North American trading on Monday 18th.

The futures reached as low as 1290 during yesterday’s session but managed to find support which brought the index back to the 1300 level.

It is conceivable that the index could pull back towards the 1320 level but in so doing a bearish flag pattern would have evolved. A test of the mid 1280’s remains a distinct possibility over the next few sessions.

EUR/USD is now within a box outlined by previous support at $1.4280 at the top and the key test level at $1.4150 at the base as the support line shown in red on the 240 minute chart below.

The overall directional bias appears now to be downwards, but for the time being I would play this cautiously and tend to look at opportunities of cross rate trading against sterling, based on the current patterns for EUR/GBP which indicates that sterling is finding more of a bid in its rate against the euro.

The following chart from Bloomberg shows just one of the several risk aversion factors which caused some of the turmoil across global markets yesterday. The graphic shows that the effective yield on two year notes of the Greek government has exceeded 20%. Surprisingly the Greek government continues to deny any allegations that it will need to re-structure its sovereign debt.

The euro had already begun to react negatively to this news before the S&P announcement added further pressure across the FX markets, althoug whether or not there are long term consequences for the major currencies vis a vis the US dollar from the negative outlook issued by S&P, remains somewhat doubtful as the USD has already been unloved for several months.

I shall repeat my comments from yesterday on the CAC40 as the index closed exactly at the 200 day EMA as the comments below suggested

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.


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

BVSP  Brazilian Bovespa Index

The Brazilian Index (BVSP) closed yesterday's negative session at exactly the 50% retracement level between the highs and lows illustrated on the chart, which could provide an opportunity for a bounce in today's session. The exchange traded fund, EWZ, provides a vehicle for taking a position on Brazilian equities.

SHY  iShares Lehman 1-3 Year Treasury Bond  

SHY, an exchange traded fund which captures the price performance of the 1-3 yr spectrum of UST's shows that. contrary to some expectations that the S&P announcement on the ratings outlook for the US could be disruptive to the Treasury market, there was in fact, as discussed in this column yesterday, a heightened desire by many fund managers to exit all kinds of risk assets and hide out in the short end of the yield curve.

Technically the pattern of lower highs suggests that there appears to be, despite the occasional and abrupt dashes into safe haven assets, an underlying downward bias to prices and accordingly an upward bias to yields in this key part of the Treasury yield curve.