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U.S. dollar could push past 100 yen, says technical analysis

TradingPub Admin | April 12, 2013

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One way you can learn more about currencies is by obtaining some forex trading education related to technical analysis.

Technical analysis is all about investigating the price movements of assets in order to determine supply and demand and therefore make informed trades.

Yen vs. dollar
One currency pair that has managed to draw substantial attention from market participants recently is the U.S. dollar and the Japanese yen, and the exchange rate between the currencies has recently encountered key resistance in the range between 99.70 and 101.45 yen per dollar, according to Bloomberg.

Niall O'Connor, a technical analyst at JPMorgan, wrote in a recent note to clients the greenback still has an "overall upside bias" relative to the yen, the news source reports. He noted that the pair has lost value a few times during the week starting on April 8, but said that there is little evidence to support the notion that the exchange rate will continue to fall.

Importance of news
It is important to note that technical analysis, which mostly focuses on supply and demand, is only one method that market experts use in order to determine future price movements, and that you can benefit from combining the practice with other information.

It is easy enough to see that the release of key news provides asset values with an impetus to change in value, as investors respond to this information by becoming either more or less optimistic about the broader economy and then seeking assets based on their perceived riskiness.

Federal Reserve impact
Future Currency Forecast reports that one major factor that has drawn the attention of market participants is the future stimulus plans of the Federal Reserve, as the actions of the central bank to further expand the money supply could easily cause global investors to alter the value of the dollar relative to other currencies.

The dollar had experienced a rally versus the yen, but this appreciation stopped at the Federal Reserve conference held on April 9, according to the news source. The greenback lost value against many different peers as markets responded to a statement made by Chairman Ben Bernanke that "today the economy is significantly stronger than it was four years ago, although conditions are clearly still far from where we would like them to be."

While some market experts had predicted that the release of the Federal Open Market Committee meeting minutes would result in the greenback losing value relative to the yen, many asserted that the information would not impede the rally that the dollar has been making relative to the Japanese currency, the media outlet reports.

Fibonacci retracement
Fibonacci analysis asserts that once the price of an asset appreciates or depreciates to a high or low, this will result in the the asset either extending the gains by a certain amount or suffering greater losses, Bloomberg reports.

O'Connor wrote in his note that the aforementioned range of the yen-to-dollar - between 99.70 and 101.45 - represented a 50 percent retracement of the sharp drop that the currency experienced between 2007, when it reached the peak in its cycle, and its subsequent high in 2009, according to the news source.

Fibonacci analysis asserts that if an asset reaches a gain or decline of 23.6 percent, 38.2 percent, 50 percent, 61.8 percent or 76.4, it will continue its existing momentum and either appreciate or depreciate by a set amount, the media outlet reports. O'Connor specifically noted that if the yen-to-dollar exchange rate rises to 102.35, this will be a 76.4 percent retracement from the peak reached in 2008.

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