Candle, RSI Charts Signaling Dollar-Yen ‘Correction’: Technical Analysis

The dollar may weaken almost 1.5 percent against the yen as momentum indicators signal recent gains in the greenback are poised to reverse, according to Forecast Pte.

The dollar touched 81.67 yen yesterday, the strongest since May 31, and closed at 80.61, below the opening price of 81.13. The currency pair’s candle chart, which displays high, low, opening and closing levels for each day, shows the dollar has finished lower than its opening price three of the past four sessions. The greenback’s 14-day relative strength index was at 72 yesterday, above the 70 level some traders see as a sign an asset’s price is set to change course.

“The candle formation looks to signal a possible reversal” of dollar strength, said Pak Lai Ng, a technical analyst in Singapore at Forecast. “I think the dollar is very overbought now.”

The dollar fell 0.7 percent to 80.09 yen as of 10:50 a.m. in Tokyo from yesterday’s close in New York.

The dollar faces a “short-term correction” after climbing more than 5 percent against the yen since the end of January, according to Ng. The greenback may fall toward 78.85 yen, the 50 percent retracement of the currency’s rise from the Feb. 1 to yesterday’s high, according to a Fibonacci chart, he said.

After its correction, the dollar may rally toward 85 yen in the next one to three months, Ng said, citing the currency’s break above key resistance levels such as the Oct. 31 high of 79.53.

Fibonacci analysis is based on the theory that prices tend to drop or rise by certain percentages after reaching a high or low. In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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