Pound May Fall to Two-Month Low Against Yen: Technical Analysis

(Bloomberg) -- The pound may fall to a two-month low against the yen in coming weeks after it dropped below so-called support at 154.08 yen, according to Bank of Tokyo-Mitsubishi UFJ Ltd., citing trading patterns. Support at 154.08 yen represented the neckline of a so- called “head-and-shoulders” pattern, which was completed when the pound closed at 153.15 yen yesterday, said Masashi Hashimoto, a Tokyo-based senior analyst at the bank, in an interview. A head and shoulders is formed when a currency makes three consecutive peaks, with the middle being the highest. The neckline is drawn across the base of the three peaks.“The pound touched 153.04 yen on the sixth and closed at 153.15 yen on the seventh, breaking below a double neckline in the 154-yen level, so the move lower will gain momentum,” Hashimoto said today.

The pound declined to 151.57 yen as of 6:40 a.m. in London from 153.15 yen in New York yesterday, after earlier weakening to 151.51 yen, the lowest level since May 27.
The U.K. currency is now likely to extend losses to between 145.89 yen and 145.74 yen, Hashimoto said.The 145.89 yen level is the 38.2 percent retracement of the pound’s rally from the Jan. 12 low of 118.85 yen to the June 12 high of 162.60 yen, based on a series of numbers known as the Fibonacci sequence. The 145.74 yen level is the 200-day moving average, according to Hashimoto.Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance or below support indicates a currency may move to the next level.In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.