Euro May Extend Drop Versus Yen in Channel: Technical Analysis

The euro may fall a further 4 percent from its present level versus the yen, extending a decline that has taken the currency to an 11-year low, according to Research Institute Ltd., citing trading patterns.

The 17-nation currency is in a so-called channel whose upper limit is demarcated by highs of 123.33 yen in April 2011 and 111.44 yen in March 2012, according to Takuya Kawabata, a Tokyo-based researcher at the unit of Japan’s largest currency-margin company. The declining bottom line of the range runs through the low of 100.76 achieved in October 2011.

The euro traded at 94.92 yen as of 2 p.m. in Tokyo, around the 76.4 percent Fibonacci retracement from the top of the channel, according to data compiled by Bloomberg.

“The euro is still in a downward trend against the yen,” said Kawabata. “If the euro drops below the 76.4 percent level, it may slide toward the lower end of the channel around 90.60 or 90.70.”

The European currency retreated to 94.24 yesterday, a level unseen since November 2000. The currency was last below 90.60 in October that year.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages from previous highs or lows.

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