The dollar may be forming a base against the yen, a move that could spur a longer-term uptrend, according to Bank of America Corp.
A close above two-month resistance of 80.22 yen may be the first signal that the dollar is basing, or ending its decline, and gearing up to resume a bullish trend started in February, according to MacNeil Curry, head of foreign exchange and interest rates technical strategy at Bank of America in New York. Resistance refers to a chart area where sell orders may be clustered.
The U.S. currency has been moving in the opposite direction from declines in the Standard & Poor’s 500 Index and Treasury 10-year yields, a sign that the bearish dollar-versus-yen trend may be overrun.
“When markets don’t do what they should, it suggests that the pre-existing trend is exhausted,” Curry said in a telephone interview.
The dollar strengthened 0.4 percent to 80.18 yen yesterday in New York. It has increased 0.7 percent since May 9, compared to a 1.8 percent drop in the S&P 500 and 0.05 percentage point drop in 10-year yields.
If the dollar is able to base and gain to 84 yen, it could appreciate to the 85 to 88 level this year, Curry said. The dollar’s long-term bull trend may resume and see it appreciate to 101 or even 125 during the next two years if higher-yielding assets start rallying, Curry said.
“I’d like to see equities come back and I’d like to see commodities start to stabilize,” he said. “To see a good, sizeable move, you’d have to see risk come back a bit.”
In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.
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