The euro may strengthen to 112.80 yen by May, its highest level in more than seven months, according to Sumitomo Mitsui Banking Corp., citing trading patterns.
The 17-nation euro bottomed against the yen in January, according to Daisuke Uno, chief strategist at the unit of Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-largest bank by market value. “The euro-yen is in the middle of the fifth wave of the multi-month upward cycle,” which is projected to end around April, Uno said, referring to Elliott Wave Theory which says market swings follow a predictable five-stage structure.
The euro traded at 108.62 yen as of 11:35 a.m. in Tokyo from 108.53 yesterday in New York, after having risen more than 11 percent over the past two months.
The euro on Jan. 16 touched 97.04 yen, the lowest since December 2000, and rallied to 102.21 on Jan. 26, the first wave in the Elliott cycle, according to Uno. The common currency’s retracement to 99.25 yen on Feb. 1 was in the second wave of the cycle and its rebound to 109.93 yen on Jan. 27, the third wave, he said. The fourth wave was completed on March 6 when the euro dropped to 105.65 yen.
The Elliott Wave Principle, proposed by accountant Ralph Elliott in the 1930’s, is a 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.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, currency or index.
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