Euro May Fall to 87.50 British Pence, Standard Chartered Says

By Ron Harui

Jan. 6 (Bloomberg) -- The euro may fall 5.6 percent to 87.50 British pence over the next three months, Standard Chartered Plc forecast, citing technical charts that predict price movements.

Daily momentum indicators such as the relative strength index and the stochastic oscillator charts are “turning bearish, favoring downside retracement,” Callum Henderson, head of global currency strategy at Standard Chartered in Singapore, wrote in a research note today. A close below the 20-day moving average of 93.20 pence would add to the prospect that the short- term trend is changing, he said.

“Technically, clients should cut euro-pound longs and go short for 87.50 pence initially,” the analyst wrote.

The euro traded at 92.79 pence at 1:40 p.m. in Tokyo from 92.74 late in New York yesterday, when it reached 92.30, the lowest level in almost three weeks. It has fallen 4.9 percent since reaching a record-high 98.03 pence on Dec. 30. The single European currency rose 30 percent versus the pound last year, the most since its debut in 1999.

The 87.50 pence level represents a 50 percent retracement of the euro’s rally to the Dec. 30 high of 98.03 pence from the Oct. 20 low of 76.94 pence, according to a series of numbers known as the Fibonacci sequence.

The euro’s 14-day relative strength index against the pound is at 54 and the currency’s stochastic oscillator is at 61, both of which are showing “bearish” signals, wrote Henderson.

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. Resistance is where sell orders may be clustered, while support is where there may be buy orders.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net