Dollar’s Tremor at 6-Month Yen High Has Hedge Fund Calling a Top

  • Greenback in danger of repeating slide after May’s rally
  • Dow Theory signals declines unless 115 breached, GCI says

The dollar’s failure to rise past Monday’s high against the yen may signal the greenback will return to the long-term bearish technical trend that has it set for its steepest annual drop since 2010, says hedge fund GCI Asset Management Inc.

The greenback reached a six-month peak of 111.36 yen on Monday and slid back even before an earthquake off Fukushima spurred demand for Japan’s currency. That puts it danger of mimicking its rally in May, when the currency surged from a low of 105.55 yen on May 3 to reach 111.45, only to slide back down, said Tatsuhiro Iwashige, chief foreign-exchange strategist of the investment solutions group at Tokyo-based GCI Asset. The currency reached a 2 1/2-year low of 99.02 in June.

“There’s a possibility the dollar fails to complete a double-bottom if it can’t extend gains past 111.45,” Iwashige said. “If the dollar pulls back from current levels, it means the attempt to reach 115 yen fails and the long-term yen appreciation trend based on the Dow Theory will be sustained,” he said, referring to technical analysis that was originally based on observations made by Wall Street Journal founder Charles Dow during the late 1800s.

The dollar has climbed about 5 percent since Nov. 9, when Donald Trump won U.S. presidential elections. Since then, Japan’s currency has been the weakest performer among Group-of-10 currencies. The greenback was at 110.83 yen as of 1:35 p.m. in Tokyo.

The dollar has been supported as U.S. yields climb on speculation the Federal Reserve will raise interest rates in December as the Bank of Japan maintains stimulus.

“The 111.45 level is crucial in testing whether the dollar will rise towards 120 yen next year,” Iwashige said. “If the level is surpassed, then the dollar will likely stay between 110-120 next year even if it falls below 110. If yesterday’s high isn’t challenged, we can say the long-term yen strengthening trend remains intact and the probability rises for the dollar to fall below 100 yen.”

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