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Euro May Test 2001 Low Versus Yen, Ichimoku Suggests: Technical Analysis

By Monami Yui and Kazumi Miura
December 08, 2011 8:49 PM EST

The euro may decline to a decade low against the yen as early as next week, Ueda Harlow Ltd. said, citing trading patterns.

The 17-nation euro is likely to weaken as the currency broke below the conversion line of a daily ichimoku chart, according to Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow, which provides foreign-exchange margin trading services. The lagging line moving below the so-called cloud and candles, whose bottom represents the currency’s close for each day, also signals a decline in the euro, Yamauchi said.

“The euro is likely to drop, targeting the Nov. 25 low of 102.49 and then the Oct. 4 of 100.76,” said Yamauchi. “Those levels may be reached by next week, depending on what comes out of the European summit.”

The euro was at 103.69 yen as of 10:27 a.m. in Tokyo. Yamauchi said the “psychological” level of 100 may come in sight should the currency breach 100.76 yen, the weakest level since June 2001, set on Oct. 4.

European Central Bank President Mario Draghi reduced the benchmark rate by a quarter-percentage point to 1 percent yesterday, matching a record low and offered banks unlimited cash for three years while damping speculation the ECB will buy more government bonds to stem the crisis. European leaders began open-ended talks aimed at safeguarding the 17-nation shared currency yesterday in Brussels.

Clouds and Candles

Ichimoku charts are used to predict a currency’s direction by analyzing the midpoints of historical highs and lows. The conversion line plots the sum of the highest high and lowest low in the preceding nine trading days. A lagging span is the most recent closing price plotted 26 days behind the current level. The cloud refers to the area between the first and second leading span lines and is used to show an area where buy orders may be clustered.

Candlesticks consist of a body, which is black or white, and upper and lower wicks. A wick shows the highest or lowest price. If a currency closes higher than it opens, the body is white. When it closes lower, the body is black.

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 reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Kazumi Miura in Tokyo at kmiura@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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