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Euro May Drop to 12-Yr Low Versus Yen: Technical Analysis

The euro may fall to a 12-year low against the yen next month, according to Sumitomo Mitsui Financial Group Inc. (8316), citing trading patterns.

The 17-nation currency may first slide to 97.76 yen, a level where the two leading lines meet on the daily ichimoku chart, as early as Oct. 8, before dropping below the so-called cloud and 94.12, said Daisuke Uno, chief strategist in Tokyo at a unit of Sumitomo Mitsui, Japan’s second-largest bank by market value. The level of 94.12 was the lowest since November 2000, according to data compiled by Bloomberg.

“The euro is looking to weaken against the yen as it fell beneath the conversion and base lines on the daily ichimoku chart,” Uno said. “Euro-yen could fall below the cloud when the two leading lines meet around Oct. 8 to Oct. 10.”

The common currency was little changed at 100.40 yen at 10:07 a.m. in Tokyo from yesterday, when it slid 0.3 percent. The euro touched a record low of 88.97 yen on Oct. 26, 2000.

There are “three bearish signals” seen on the weekly ichimoku chart: the conversion line remains below the base line; the spot price is below the so-called cloud; and the lag line is below the spot prices, according to Uno.

The baseline is the sum of the highest high and the lowest low over the past 26 trading days. The conversion line is the same calculation over the past nine trading days, and the lag line 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 on the chart and is used to show an area where trading orders may be clustered.

Ichimoku charts are used to predict a currency’s direction by analyzing the midpoints of historical highs and lows.

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