Cloud Highlights Strong Yen, Citigroup Says: Technical Analysis

The yen may reach its strongest level against the euro since 2000 if it breaches a key level it’s approaching, according to Citigroup Inc., citing ichimoku-cloud chart analysis.

If the yen gains beyond 95.5 to the euro, a level near its low on June 1, it may strengthen to as much as 92 yen, Osamu Takashima, chief currency strategist in Tokyo at Citigroup, wrote today in a client note. Both levels were last reached in November 2000. The currency declined 0.2 percent today to 97.01 per euro in New York.

“The risk-off sentiment has remained persistent,” Takashima wrote in the note. “In addition, the Bank of Japan didn’t decide on additional easing last week, besides changing the composition of its asset-purchase program, while other major central banks are leaning toward monetary easing.” He couldn’t be reached immediately for further comment.

Japan’s currency stayed strong versus the euro and the dollar last week as investors lost risk appetite, Takashima wrote. Finance Minister Jun Azumi said today gains in the currency were “speculative” and officials will “take decisive action if needed.”

On a cloud chart, the euro-yen pair has moved below the so-called conversion and base lines and started to form a dead-cross pattern, Takashima wrote. A dead cross appears when a short-term average drops below a longer-term one and signals a security or currency, in this case the euro, will extend losses.


Bets that the Japanese currency will appreciate further against the dollar also will probably increase, according to Citigroup. The yen, which lost 0.2 percent today to 79.06 to the greenback, may strengthen to 77.66 if it breaches the 78.61 level, Takashima wrote.

The Bank of Japan expanded its asset-purchase program to 45 trillion yen ($564 billion) July 12 from 40 trillion yen, according to a policy statement. The loan facility was cut to 25 trillion yen from 30 trillion yen. The European Central Bank cut its benchmark interest rate to a record low 0.75 percent on July 5, and the Bank of England raised its asset-purchase target.

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 to forecast changes in a security, commodity, currency or index.

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