The one exception, according to those who take technical analysis seriously, is the foreign exchange market.
Pundits are pointing to a change in the fortunes of the dollar, the renminbi has been in demand and sterling has been under increasing pressure. Even the euro has taken something of a tumble as fears of wider economic problems circulate.
It seems that a worldwide reassessment of the value of currencies is taking place. Was this predictable by examining the charts?
It seems that charts could have played a part in the recent weakness of sterling and the euro but in the end it is the fundamental assessment of what is likely to be around the corner that will have the greatest part to play in currency movements.
It all starts with America. On the face of it, the scene was set for an imploding economy. This is the nation where the credit crunch started. House prices have been falling for over two years, consumers are being squeezed by higher fuel and food prices and the twin deficit problem refuses to go away. Yet is the US in recession? Not by any measure.
This unexpected outcome of what would normally have driven even the most robust economy into reverse can be explained by the way in which the US economy has changed.
The massive shift from manufacturing into services that has taken place over the last generation has left the world’s biggest economy far less susceptible to the influences that generate recessionary conditions. Instead, it is the new manufacturing nations, such as China, that are bearing the brunt of the change in the macro-economic climate.
America does make goods still, but even here they have an edge. A weak dollar has created opportunities in export markets. Moreover, the considerable investment they have made in technology has created industries where inventory management is more efficient and labour less important than in other countries. These are two important ingredients in a recessionary mix that may impinge more stringently elsewhere.
And elsewhere includes the UK and the eurozone. Here, the charts were delivering worrying signals regarding the relationship between domestic currencies and the dollar. The euro breaching a 200-day moving average on the downside would have been sufficient to set alarm bells ringing in foreign exchange trading rooms by itself. The fact that some downbeat noises emerged from the chairman of the European Central Bank simply underscored the potential for loss.
In the UK, it was not the 200-day moving average that fell to the downward momentum of sterling but the 200-week average. It goes to show just how weak our currency has become. An upward trend of many years standing has now been breached.
But the real concern must be the Bank of England’s gloomy forecast for economic prospects, as outlined in last week’s inflation report. Perhaps the charts are doing no more than reflect the underlying fundamentals.
There is little doubt that our domestic economic prospects appear to have worsened significantly. A weak currency will have its pluses and minuses. Inflation will hardly be helped if we plunge against the dollar but exports should benefit.
Perhaps the biggest plus is that shares may prosper as a consequence, given the very international nature of the businesses that go to make up our leading domestic index. It is, as they say, an ill wind…
Brian Tora (firstname.lastname@example.org) is principal of the Tora Partnership