Pound May Climb to $1.70 on Dollar Weakness: Technical Analysis

By Anchalee Worrachate

Sept. 16 (Bloomberg) -- The pound may strengthen to $1.7050 in the “medium term” amid weakness in the U.S. currency, according to Commerzbank AG, which cited trading patterns.

“Pound-dollar has sold off to its 50 percent retracement of the recent leg higher,” Karen Jones, a technical analyst in London, wrote today in a report, citing Fibonacci analysis. “The move lower is regarded as corrective as we look for dips to be contained by the $1.6320-$1.6250 band for an upside bias to be maintained,” she said. “Add to longs on further weakness to $1.6350,” Jones said. A long position is a bet an asset will appreciate in value.

So-called support for sterling is “the recent low and support line” at $1.6145-$1.6115, she said. Support levels are where buy orders may be clustered.

“Given the recent weakness of the U.S. dollar, the risk has increased for the upmove to then reassert” toward $1.7040- $1.7050 over one-to-three months, she wrote.

The pound advanced 0.1 percent to $1.6508 as of 10:38 a.m. in London after the Office for National Statistics said the number of people seeking jobs in the three months through July rose by 210,000 to 2.47 million. Against the euro, the British currency was at 88.98 pence, from 88.91 pence yesterday.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance or below support indicates a currency may move to the next level.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net