Euro May Advance to ‘Psychological’ 140 Yen: Technical Analysis

By Ron Harui

Oct. 27 (Bloomberg) -- The euro may advance to the “psychological” level of 140 yen should the currency close above so-called resistance at 138.70 yen, RBC Capital Markets said, citing trading patterns.

Resistance at 138.70 yen represents the peaks of a “double top” and the horizontal line of an “ascending triangle,” George Davis, chief technical analyst in Toronto at RBC Capital Markets, wrote in an e-mail to Bloomberg News yesterday.

A double top forms when a currency rises, falls and climbs back to near its earlier high before dropping again. The euro’s first peak was the June high of 139.22 yen and the second peak was the August high of 138.72 yen, according to data compiled by Bloomberg. An ascending triangle is a right-angle triangle that usually forms during an uptrend as a continuation pattern.

“A daily close above 138.70 would not only pierce a double top, but it would also generate the bullish resolution of an ascending triangle pattern,” Davis wrote. “This outcome would project additional gains toward secondary resistance levels at 140.00, followed by 141.68 and 143.16.”

The euro traded at 137.12 yen as of 9:45 a.m. in Tokyo from 137.10 yen in New York yesterday, when it climbed to 138.49 yen, the highest level since Aug. 10. Europe’s currency has risen 4.4 percent so far in October and is heading for its first monthly gain versus the yen since June.

Resistance at 141.68 yen is the Oct. 14, 2008, high and the 143.16 yen level is the upper boundary of an ascending channel, according to RBC Capital Markets. An ascending channel indicates a currency will trade higher as long as it does not break below the lower boundary, or support.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance is where sell orders may be clustered, while support is where there may be buy orders.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net