Dollar May Extend Recent Decline to 84 Yen: Technical Analysis

By Hiroko Komiya

Nov. 26 (Bloomberg) -- The dollar may extend its decline to the mid-84 yen level after sliding to a 14-year low today, Bank of Tokyo-Mitsubishi UFJ Ltd. said, citing trading patterns.

Having breached “the low end of a downward channel starting in March,” the U.S. currency has the potential to extend its losses to around 84.50 yen, said Masashi Hashimoto, a senior analyst at the unit of Japan’s biggest publicly traded bank. That would represent a 176.4 percent retracement of the greenback’s rally from a January 2005 low to a June 2007 high, he said, referring to a series of numbers known as the Fibonacci sequence.

“The dollar isn’t showing any signs it will halt its decline,” Tokyo-based Hashimoto said.

The dollar weakened to 86.56 yen as of 2:46 p.m. in Tokyo from 87.35 yesterday in New York. It earlier declined to 86.30, the lowest level since July 1995.

An ichimoku chart also shows the dollar is poised to keep sliding, Hashimoto said. The dollar remains below the bottom line of the so-called cloud, its shorter-term conversion line is lower than its longer-term baseline, and its lagging span is also beneath the current exchange-rate level, he said.

“All of these all represent dollar-selling signals,” Hashimoto said.

An ichimoku chart analyzes the midpoints of historic highs and lows. The conversion line is the same calculation over the past nine trading days. The baseline is the sum of the highest high and the lowest low over the past 26 trading days. A lagging span is the most recent closing price plotted 26 days behind the current level.

Relative Strength

The relative strength index indicates the dollar is oversold, but “oscillators don’t work when a trend is underway,” Hashimoto said. He said he pays more attention to shorter-term moving averages such as five- and 21 days. Should the dollar fall below the mid-84 yen level, 80 yen and a record low of 79.75 yen registered in April 1995 would then come into sight, he said.

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: Hiroko Komiya in Tokyo at hkomiya1@bloomberg.net.