Pound May Gain 10% Versus Dollar on Fibonacci, Citigroup Says

By Candice Zachariahs

Nov. 25 (Bloomberg) -- The British pound may gain more than 10 percent against the dollar, Citigroup Global Markets Inc. said, citing charts used to predict currency movements.

A rally from near the 76.4 percent Fibonacci retracement of the pound's climb from $1.4557 to $1.5249 between Nov. 13 and 19 may indicate ``daily momentum is turning up,'' wrote New York- based Tom Fitzpatrick and London-based Shyam Devani. ``In addition, an argument could be made for having completed a five- wave sequence lower from the $1.8648 area,'' they wrote, referring to the Elliot Wave Theory.

``We could be setting the platform for a reasonably decent equity rally, albeit a bear market rally,'' Fitzpatrick said in a telephone interview. ``You're going to see people react to that on the risk trades and the dollar trades and that could give you a fairly decent bounce in the pound.''

Investors should target a gain in the pound to $1.5950 and possibly to $1.67, Fitzpatrick and Devani wrote in a research note dated Nov. 24. They should exit the trade if the currency weakens to $1.4698, Citigroup said. The pound traded at $1.5120 at 10:21 a.m. in Tokyo from 1.5183 yesterday.

British Prime Minister Gordon Brown yesterday pledged a 25.6 billion-pound ($38.8 billion) package, in the biggest round of tax cuts and spending increases in two decades, to counter the U.K.'s first recession since 1991.

U.S. stocks posted the biggest two-day rally since 1987 yesterday after the U.S. government guaranteed $306 billion of troubled Citigroup Inc. assets and lawmakers pledged to pass another economic stimulus package.

Fibonacci analysis uses 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 a trend may stall. Other Fibonacci points include 50 percent and 61.8 percent.

Elliott Wave Theory, created by Ralph Elliott in 1938, tries to predict future price movements by dividing past movements into waves and calculating changes in value.

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net