Euro May Fall to 3-Month Low Against Pound: Technical Analysis

By Ron Harui

May 20 (Bloomberg) -- The euro may fall to three-month low against the British pound should the currency drop below so- called support between 87.65 pence and 87.85 pence, Citigroup Inc. said, citing trading patterns.

Support at 87.85 pence represents an ascending trend line that connects the lows of Feb. 10 and May 7, while the 87.65 pence level is the May 7 low, based on Citigroup’s chart. Support is where buy orders may be clustered.

The euro-pound is “now testing a strong support between 87.65 and 87.85, which has been sticky in the past,” New York- based Tom Fitzpatrick and London-based Shyam Devani, wrote in a research note yesterday. “A break below here would open up for a test of the much more significant support in the 86.35-86.75 area.”

Europe’s single currency dropped to 87.84 pence as of 7:35 a.m. in London from 88.08 pence in New York yesterday when it reached 87.65 pence, the lowest level since May 7. The 86.75 pence level was last traded on Feb. 10.

Support at 86.75 pence is a horizontal trend line that connects the Nov. 13 high and the Feb. 6 low, while the 86.35 pence level is the Feb. 10 low, based on Citigroup’s chart. The Nov. 13 high is a previous level of resistance. When so-called resistance is breached, that level becomes support. Resistance is where sell orders may be clustered.

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 reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.