BLBG: Dollar Index at `Turning Point,' May Gain 5% by April: Technical Analysis
The Dollar Index’s recent gains mark a "turning point" that may see the gauge climb another 5 percent by April, according to Bank of Tokyo-Mitsubishi UFJ Ltd., citing trading patterns.
The index, which tracks the dollar against the currencies of six major U.S. trading partners, rose above 80 yesterday after reaching 75.631 on Nov. 4, the weakest since Dec. 8, 2009. It was above the top of the cloud on an ichimoku chart for a third day and formed a so-called golden cross, with the five-day moving average crossing above 21-day and 65-day lines.
“The dollar index is heading into a major turning point,” said Teppei Ino, an analyst at the unit of Japan’s largest bank. If the five-day line consistently stays above the 90-day line, and the 65-day and 90-day lines turn upward, “the dollar- weakening trend will come to a close, and we’ll have entered a sustained strong-dollar phase."
The index climbed to 80.275 as of 9:29 a.m. in London from yesterday’s close of 79.730. The gauge is down 9.4 percent from its high this year in June.
Once the dollar’s rising trend is confirmed, the index may advance to 82.170 around January, a 50 percent retracement of a decline from June through early November, Ino said. It may extend gains to 83.713 around March to April, a 61.8 percent Fibonacci retracement, he said.
Ichimoku charts are used to predict a currency’s direction by analyzing the midpoints of historical highs and lows. The cloud refers to the area between the first and second leading span lines on the chart. A golden cross occurs when a short-term moving average passes above a longer-term line. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.
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: Shigeki Nozawa in Tokyo at snozawa1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
