The dollar is unlikely to recoup its biggest weekly drop versus the yen in three months after the pair’s 50-day moving average fell below the 200-day measure in what IG Group Holdings Plc called a dead-cross pattern.
The U.S. currency declined 0.7 percent last week, closing below the upper line of what’s known as the Ichimoku cloud and signaling the end of a bullish period that began in November 2012 on the chart. Its 14-day relative strength index is below 50, indicating upward momentum is not strengthening, said Junichi Ishikawa, a Tokyo-based analyst at IG Group. The 50-day moving average at 101.88 was below the 200-day level of 101.91 today, a pattern unseen since 2012, data compiled by Bloomberg show.
“A dead cross suggests downward pressure is increasing,” Ishikawa said. “As such, it will be hard for the dollar to move back above the 200-day moving average, and the 21-day and 50-day moving averages are likely to cap the upside. This is a reason to worry about downward pressure on the dollar-yen.”
The May 21 low of 100.82 is a key support level and a failure to rebound from declines there would expose the dollar to this year’s low of 100.76, he said. Support refers to an area on a chart where analysts anticipate orders to buy are clustered.
The dollar traded at 101.42 yen as of 6:33 a.m. in London after falling as low as 101.07 on July 10, the least since May 21. Three-month implied volatility in the pair was little changed at 5.46 percent, up from 5.18 percent reached July 4, a record low in data going back to 1995.
Dollar-yen will probably remain in a range between the pair’s Feb. 4 low of 100.76 and the April high of 104.13, said David Finnerty, a Singapore-based currency strategist for Bloomberg First Word.
“Summer trade more than likely means USD/JPY will keep going nowhere anytime soon despite any death cross,” he said. “Because USD/JPY has been in a such a small trading range for last few months the significance of this particular death cross is diminished.”
After rising 21 percent last year, adding to 2012’s 13-percent gain, the dollar has dropped 3.7 percent since Dec. 31. It has alternated between gains and losses for the past nine weeks.
Citigroup Inc. isn’t looking at the moving average changes as a sign of further weakness in the dollar.
“It’s closer to the bottom of the range than anywhere else, so our bias is that we turn back up in dollar-yen,” said Shyam Devani, a senior technical strategist in Singapore at Citigroup. “We’re generally bullish on the dollar.”
As long as dollar-yen remains above support near 100.61, the outlook for the dollar looks “constructive,” he said.