Macro risk analysis - Daily Form for May 4, 2011

Inter-market Technical Analysis using algorithmic pattern detection

WEDNESDAY MAY 4, 2011       10:11:00 GMT

Risk on momentum players are now experiencing headwinds as EM, many commodities and, most importantly, Chinese equities appear to be on the defensive.

Shanghai took a rather sharp 2% plus move to the downside in Asian trading. The highlighted data on the right hand side of the chart shows that there are several key intersections - the cloud base, the 200 day EMA and the lower Bollinger band - in the proximity of today’s close, and if a bounce does not materialize at such a technically supportive zone, this could trigger a lot of long liquidations.

On the subject of China I am very pleased to have been invited as a guest speaker to the China FX Forum to be held in Beijing on May 12th, details of which can be found here .

AUD/USD came within a whisker of the target outlined here last week. While another move back towards the $1.10 level could well unfold, the momentum appears to be fading for the Aussie dollar as evidence of risk aversion is mounting across other related asset classes.

Also I shall be watching the Friday close of AUD/CHF quite closely this week as a trend line violation on the weekly chart for this pair would be another negative for risk appetite.

DBV, which acts as an ETF proxy for the FX carry trade, appears to have stalled at the top of its rebound from the Japanese selling climax in late March.

A final indicator for today’s theme that the tide may be turning for the fully blown risk on asset allocation strategies is the ongoing weakness of the Brazilian index.

One would expect to see a "double bottom" close to current levels but the technical tones for this index, along with that for Mumbai which I discussed here yesterday and during a slot on CNBC’s European Closing Bell yesterday, does not, at least in my estimation, appear to be sending out strong "buy the dip" signals.