Bloomberg News

Euro to Peak Then Slide to $1.35 on Ichimoku: Technical Analysis

October 26, 2011

Oct. 26 (Bloomberg) -- The euro, set for its best monthly rally since April, may peak at about $1.40 before sliding to $1.35 by the end of November, Bank of Tokyo-Mitsubishi UFJ Ltd. said citing trading patterns.

The 17-nation currency is likely to appreciate toward the $1.4013 level that is the 61.8 percent retracement from the high on Aug. 29 to the low of Oct. 4 on a Fibonacci chart, said Teppei Ino, an analyst at the unit of Japan’s largest bank. The currency will face resistance at the $1.40 level indicated by its 90-day moving average.

The 17-nation currency is also approaching the upper end of the so-called cloud on a weekly ichimoku chart, the analyst said. The chart’s conversion line has slipped below the baseline and the lag line is below the currency’s spot value, which are both indicators of weakness, according to Ino. The euro may “gradually slide” next month toward the $1.35 level indicated at the base of the cloud, he said.

The common currency reached almost a two-month high of $1.4549 on Aug. 29, and tumbled to $1.3146 on Oct. 4, the least since Jan. 13. The euro is set for a 4 percent jump in October and traded at $1.3927 as of 8:40 a.m. London time.

Ichimoku analysis is used to predict a currency’s direction through analyzing the midpoints of historical highs and lows. The cloud refers to the area between the first and second leading span lines on the ichimoku gauge and is used to show an area where buy orders may be clustered. Fibonacci analysis is based on the theory that prices tend to drop or rise by certain percentages after reaching a high or low.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

--Editor: Rocky Swift, Nate Hosoda

To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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