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Japan’s Bond Futures May Fall to 5-Week Low: Technical Analysis

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June 1 (Bloomberg) -- Japanese bond futures may extend declines to a five-week low after falling below their 20-day moving average, Mizuho Investors Securities Co. said, citing trading patterns.

Ten-year contracts for June delivery closed at 140.63 yesterday, breaking below the moving average of 140.66 for the first time since April, according to data compiled by Bloomberg. The futures climbed to a two-month high of 141 on May 27.

The decline below the moving average suggests they “will wind down their rally and adjust in the short-term,” said Akihiko Inoue, chief market analyst at the unit of Japan’s second-largest bank in Tokyo.

Ten-year futures traded at 140.61 at the 11 a.m. morning close on the Tokyo Stock Exchange. Benchmark contracts have traded in a range of 138.32 to 141.17 this year.

The securities are now poised to fall to 140.29, their high reached on May 2, and then to as low as 139.69, a 50 percent retracement of the rally from April 8 to May 27, Inoue said, referring to Fibonacci analysis. The contracts last traded at 139.69 on April 25.

The 250-day moving average, currently at 140.95, is likely to remain a resistance level for the time being, Inoue said. Futures failed to close above this level last month even though they rose above it in intra-day trading.

Fibonacci analysis is based on a theory that prices rise or fall by certain percentages after reaching a high or low. Key percentages include 38.2, 50 and 61.8 and 76.4. A break above resistance, where sell orders may be clustered, or below support, indicates a currency may move to the next level.

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 the story: Nobuyuki Akama in Tokyo at akam@bloomberg.net

To contact the translator on the story: Taku Kato in Tokyo at tkato6@bloomberg.net

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