Bloomberg News

Dollar May Advance to 94 Yen on Elliott Wave: Technical Analysis

November 27, 2011

Nov. 24 (Bloomberg) -- The dollar may strengthen more than 20 percent to as high as 94 yen should it climb above key resistance levels at 83.30 and 85.50, MIG Bank said, citing trading patterns.

The U.S. currency is poised to rise to an 18-month high as it enters a “major cycle reversal,” according to Ron William, a technical strategist at MIG Bank in Neuchatel, Switzerland, referring to Elliott Wave theory. The greenback may fall to additional postwar lows before it begins to rally, he said.

“The 40-year long-term impulsive Elliott Wave cycle on dollar-yen is on the edge of a major upside reversal,” William said in a telephone interview. “A close above 80.60 signals the powerful recovery into 83.30 and 85.50, with scope toward 94,” he said.

The dollar traded at 77.11 yen at 4:52 p.m. London time, having declined 4.9 percent against Japan’s currency this year. The last time it traded above 94 yen was May 5, 2010.

The Elliott Wave Principle, published by accountant Ralph Elliott in 1938, is form of technical analysis based on the theory that investor psychology moves between optimism and pessimism in natural sequences. It seeks to predict prices by dividing past trends into five sections, or waves.

Examination reveals the current wave is scheduled to end either in November or December, suggesting the dollar will begin to strengthen then, William said.

The dollar weakened to a post-World War II low of 75.35 yen on Oct. 31, spurring the Japanese authorities to intervene to protect exporters.

“Analysis suggests that a post-intervention retracement and new record low is likely, with risk into sub-74 - which would likely be a temporary, but dramatic price spike,” William said. “This would help squeeze out the overcrowded sentiment and trigger the major cycle reversal.”

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

--Editors: Nicholas Reynolds, Mark McCord

To contact the reporter on this story: Keith Jenkins in London at Kjenkins3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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