Euro May Decline to 88 British Pence, RBC Capital Markets Says

By Ron Harui

Jan. 9 (Bloomberg) -- The euro may fall to 88 British pence should the currency close below so-called support at 89.97 pence, based on trading patterns, said George Davis, chief technical analyst in Toronto at RBC Capital Markets.

The support level represents a 38.2 percent retracement of the euro’s rise to a record high of 98.03 pence on Dec. 30 from the Oct. 20 low of 76.94 pence, according to a series of numbers known as the Fibonacci sequence, he wrote in a research note yesterday. Support is where buy orders may be clustered.

“We believe that the euro-pound has additional downside potential in the current environment,” Davis wrote. “A close below 89.97 would confirm this risk and shift the focus to uptrend support at 88.00.”

The euro declined to 89.74 pence as of 7:15 a.m. in London from 90.06 pence late in New York yesterday, when it reached 88.94 pence, the lowest level since Dec. 15. It has fallen 8.4 percent since reaching 98.03 pence on Dec. 30.

The 88 pence level is support on an ascending trend line that connects the Oct. 31 low of 78.09 pence and the Dec. 1 low of 82.43 pence, according to RBC’s chart.

“A close below 88 would be a damaging blow, as it would produce a bearish intermediate trend reversal,” Davis wrote. “This would nullify bullish sentiment and highlight the 50 percent retracement at 87.48.”

Fibonacci projections use past prices to determine potential moves in the future. Other levels are 61.8 percent and 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