The euro may advance versus the dollar to the strongest level in almost 10 months after breaking key resistance hurdles of $1.3140 to $1.3172, Cilline Bain, a London-based technical analyst at Credit Suisse Group AG, wrote to clients.
”Last week’s very sharp rally completed a long-term inverted head-and-shoulders reversal pattern,” Bain said in a telephone interview. “That suggests that a much longer-term rally to $1.40 is going to unfold in the next six months.”
Abe’s LDP won 294 seats in Japan’s 480-member lower house of parliament. Outgoing Prime Minister Yoshihiko Noda’s Democratic Party of Japan lost three-quarters of its lawmakers, according to public broadcaster NHK.
“There is definitely more room for yen weakness going into next year,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S in Copenhagen. “What’s going on in Japan is very significant. There’s likely to be some easing at this week’s meeting, but more important is that we might see a hike of the inflation target next year.”
The yen earlier fell as much a 1.2 percent against the dollar, the biggest drop since Nov. 15.
The yen’s declines may be limited against the dollar as positioning becomes more crowded. Futures traders increased bets to the most since July 2007 that the yen will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. Net shorts were at 94,401 wagers on Dec. 11, compared with 90,326 a week earlier.
The 14-day relative strength index was at 25.3 below the 30 level for a fourth day. A reading of 30 or lower indicates an asset may have fallen too far too quickly and is due for a correction. The yen’s relative strength versus the euro was 22.7.