Elliott Wave Signals Yen Gain to 91 Per Dollar: Chart of the Day

The yen is poised to rally 8 percent to about 91 per dollar, according to Elliott Wave Theory analysis, after being the worst performer among 10 major currencies in the past six months.

The CHART OF THE DAY shows the Elliott Wave, which is based on the idea that market swings follow a five-stage pattern. The chart indicates the yen completed its third bearish cycle that lasted from September to last month, according to Naohiko Miyata, chief technical analyst in Tokyo at Mitsubishi UFJ Morgan Stanley Securities Co. The currency is now in a fourth wave that may propel it to 91.23 yen, the 38.2 percent Fibonacci retracement of the third cycle, in coming months.

Japan’s currency came within 0.1 percent of 100 yen per dollar last month, a level unseen in four years, after Bank of Japan Governor Haruhiko Kuroda surpassed economist expectations by pledging to double monthly bond purchases and buy longer-term debt to reach a 2 percent annual inflation goal. The yen rose 0.1 percent to 98.93 per dollar at 6:45 a.m. in Tokyo.

The Japanese currency’s 1 percent rally since reaching 99.95 on April 11 signaled the end of the third wave, Miyata said. The first wave began on Feb. 1, 2012 as it fell from 76.03 to an 11-month low of 84.18 on March 15. The second wave lasted until Sept. 13, when the yen rose to 77.13, he said.

“I don’t expect the yen’s slide in the fifth wave to be as big as the one seen in the third,” Miyata said, adding the currency will not weaken past 105.50, the 61.8 percent Fibonacci retracement from its gain from the June 2007 low of 124.14 to the post war record of 75.35 reached in October 2011.

Elliott Wave Theory, created by American accountant and author Ralph Nelson Elliott in the 1930s, seeks to predict moves in markets by dividing past trends into five sections, or waves. Fibonacci studies are based on the theory that prices rise or fall by certain percentages after reaching a high or low.

The yen has fallen more than 20 percent in the past six months, the most among 10 developed-market currencies tracked by Bloomberg Correlation Weighted Indexes.

Before it's here, it's on the Bloomberg Terminal.