The dollar may fall to 87 yen briefly before resuming its advance, IG Markets Securities Ltd. said, citing trading patterns.
Until the Bank of Japan’s Jan. 21-22 policy meeting, “there’s an air pocket, and dollar-yen will temporarily trend lower,” said Junichi Ishikawa, an analyst at IG Markets in Tokyo. “The key point is whether the dollar can drop below the daily ichimoku chart’s conversion line which has served as support for the currency since the middle of November.”
Should the greenback break below 88.25 yen, the next key level will be about 87, he said. If the dollar doesn’t fall below the 21-day moving average near 86.80 on a closing basis, the currency will stop its slide at around 87, he said.
The dollar dropped 0.8 percent to 88.19 yen at 7:38 a.m. in London, following a 0.8 percent loss yesterday. It would be the sharpest back-to-back decline since May 18. The greenback reached 89.67 on Jan. 14, the highest level since June 2010.
The ichimoku’s three signals to buy the dollar are when its conversion line is higher than the base line, the currency is above the cloud formed by the leading lines, and the lagging span is greater than the spot rate, Ishikawa said.
Ichimoku charts are used to predict a currency’s direction by analyzing the midpoints of historical highs and lows.
In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.