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Dollar-Yen May Fall to 75.56 on Cloud: Technical Analysis

Bank of Japan Governor Masaaki Shirakawa
Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Kiyoshi Ota/Bloomberg

The dollar may drop toward 75.56 versus the yen after breaching key technical levels amid risk aversion by investors, according to Bank of America Corp.

The U.S. currency may be poised for further declines after it closed below the so-called cloud on its weekly ichimoku chart, according to MacNeil Curry, the bank’s New York-based head of foreign-exchange and interest-rates technical strategy. The dollar slid 2.1 percent to 78.02 yen in the five days ended June 1, data compiled by Bloomberg show.

“While far from a definitive break, the larger bull trend in U.S. Treasuries, and risk off trend generally, indicates that this level will ultimately give way,” Curry wrote in a report yesterday. The greenback may fall toward a support area at 76.25 yen to 75.56 yen, he wrote. Support is an area on a chart where orders to buy may be clustered.

The dollar lost 0.1 percent to 78.30 yen as of 10:16 a.m. in Tokyo. It retreated to 75.35 yen in October, a post-World War II record low.

The extra yield investors demand to hold two-year Treasuries instead of similar-maturity Japanese bonds was at 15 basis points, or 0.15 percentage point, down from this year’s high of 28 basis points. Bank of Japan Governor Masaaki Shirakawa said in August there’s a “relatively high” correlation between the rate gap and the dollar-yen rate, as falling yield premiums in the U.S. damp dollar-buying demand from Japanese investors.

Ichimoku analysis is used to predict a currency’s direction through analyzing the midpoints of historical highs and lows. 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 to forecast changes in a security, commodity, currency or index.

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