Dollar May Advance to 107.70 on Charts, Bank of America Says

By Kosuke Goto

July 4 (Bloomberg) -- The dollar may advance to 107.70 yen, according to charts traders watch to predict price movements, said Tomoko Fujii, head of economics and strategy for Japan at Bank of America Corp., the second-largest U.S. bank.

A so-called candle chart, that displays a currency's high, low, open and close for each day, indicated traders became bullish on the dollar, said Tokyo-based Fujii. The upside target of 107.70 was on its 200-day moving average, she said.

``The dollar-yen's short-term technical momentum is bullish,'' Fujii said.

The candle chart on July 2 and yesterday showed a so-called ``bullish engulfing pattern,'' a formation that shows the buying pressure exceeded selling pressure, reversing the dollar's bearish-trend, she said. In this formation, the first day's body, which is the area between the open and closing price, is engulfed by the second day's body.

The U.S. currency traded at 106.67 yen as of 11:40 a.m. in Tokyo from 106.73 yen in New York yesterday. It last reached 107.70 yen on June 26.

In the longer term, the dollar-yen is likely to move between its 55-day moving average, at 105.37 yen today, and the 200-day moving average, she added.

Traders often look for signs of a currency's short-term trend by viewing the five-day moving average and aim to forecast longer-term trends with the 21-, 55- and 200-day moving averages.

They use moving averages to identify levels of support, where buying is expected, or resistance, where selling is predicted.

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

To contact the reporter on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net