By Candice Zachariahs
Aug. 14 (Bloomberg) -- The euro may fall towards 130.85 yen with a close below 135.34 signaling a “bearish trend reversal” and the return of higher levels of risk aversion across equity, commodity and currency markets, RBC Capital Markets said.
The euro is testing the base of an ascending channel with daily momentum charts showing a “double top in overbought territory,” George Davis, chief technical analyst for fixed- income and currency strategy in Toronto at the unit of Canada’s biggest lender, wrote in a note to clients yesterday.
“A daily close below 135.34 would produce a bearish trend reversal that would have significant cross-asset implications,” Davies said. That “would push risk aversion levels higher and project additional losses toward support at 132.81, followed by 130.85.”
The euro slipped 0.2 percent to 136.14 yen from 136.46 yen as of 8:29 a.m. in Tokyo. It declined 0.1 percent to $1.4283.
The Dollar Index, which the ICE uses to track the dollar against currencies of six major U.S. trading partners, has formed a double bottom near 77.69, Davies wrote. A gauge of commodity prices is charting a double top in the 269.18 area, he said.
The euro will have to close above 139.14 yen to “to generate new upward price momentum that is required to sustain the recent rally in stock and commodity markets.”
A double top is made up of two consecutive peaks that are approximately equal, with a moderate trough in between, and can be used as a sell signal. A double bottom is made up of two consecutive troughs and may indicate a rebound.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast price changes in a security, commodity, currency or index.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
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