Ichimoku Cloud May Signal Dollar Weakness, Citi Says: Technical Analysis

The dollar will be confined to a range of 75 yen to 80 yen in 2012 and is more likely to depreciate, Citigroup Inc. said, citing ichimoku-cloud chart analysis.

The weekly cloud at 78 yen to 80 yen this year will provide strong resistance, and risks of U.S. dollar depreciation versus the yen exceed those that tilt toward appreciation, Osamu Takashima and Issei Suzuki, foreign-exchange strategists at Citibank Japan Ltd. in Tokyo, wrote in a note to clients today. Resistance refers to the upper boundary of a trading range, where sell orders may be clustered.

“Our overall bias is U.S.-dollar bullish, so I suspect if we see 80 that U.S. dollar is much stronger against other currencies,” Tom Fitzpatrick, Citigroup’s New York-based chief technical analyst, said in an e-mail message. “Unless and until the Federal Reserve shifts course, this looks like range trade with a slight downside bias.”

The dollar was little changed at 76.89 yen at 4:46 p.m. New York time. The yen gained to 75.35 per dollar on Oct. 31, the strongest level since World War II. That prompted the government to sell the currency to curb its strength, following previous interventions in March and August.

Ichimoku charts are used to predict a currency’s direction by analyzing the midpoints of historical highs and lows. The conversion line plots the sum of the highest high and lowest low over the past nine trading days. The baseline is the same calculation over the past 26 days.

The cloud refers to the area between the first and second leading span lines on the chart and is used to show an area where buy orders may be clustered.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Chris Fournier in Halifax, Nova Scotia, at cfournier3@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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