Pound May Extend Decline to $1.8300 in Two Weeks, Forecast Says

By Ron Harui

Aug. 25 (Bloomberg) -- The British pound may extend its decline to $1.8300 in the next two weeks after the currency closed on Aug. 22 below so-called support at $1.8620, said Pak Lai Ng, a technical analyst at Forecast Pte Ltd. in Singapore.

Support at $1.8620 was a 61.8 percent retracement of the pound's rise from the November 2005 low of $1.7049 to the November 2007 high of $2.1161, based on a series of numbers known as the Fibonacci sequence. Support is where buy orders may be clustered.

``The pound is extending the big move down from November,'' Ng said. ``The move looks pretty impulsive.''

The pound fell to $1.8438 at 1:30 p.m. in Tokyo from $1.8527 in New York on Aug. 22. It reached $1.8413, the lowest since July 26, 2006. The currency has dropped 13 percent since touching a 26 1/2-year high of $2.1161 on Nov. 9.

The $1.8300 level is a 38.2 percent Fibonacci retracement of the currency's advance from the June 2001 low of $1.3682 to the November 2007 high, according to Ng.

Momentum indicators such as the stochastic oscillator chart signal the pound may continue to weaken even as they show the currency is ``a bit oversold,'' Ng said. ``It could stay oversold for a long time.''

The pound's 14-day stochastic oscillator was 0.38 against the dollar today, according to data compiled by Bloomberg. It has been below 20, a level that signals a currency may have fallen too quickly, since Aug. 22.

Fibonacci analysis is a mathematical formula based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break of one indicates a currency may move to the next. A failure suggests the trend may stall. Other Fibonacci points include 76.4 percent.

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: Ron Harui in Singapore at rharui@bloomberg.net