Euro May Fall to 8-Week Low Against Pound: Technical Analysis

By Ron Harui

Nov. 10 (Bloomberg) -- The euro may fall to an eight-week low against the British pound should it drop below so-called support at 89.06 pence, said Pak Lai Ng, a technical analyst at Forecast Pte in Singapore, citing trading patterns.

Europe’s currency is likely to test that level in a week, Ng said. The support is a 50 percent retracement of the euro’s rise from its June low of 84.01 pence to the October high of 94.12 pence, based on a series of numbers known as the Fibonacci sequence.

“The euro-pound looks like it’s going to break down,” Ng said in an interview. “It may test that Fibonacci level and then the 200-day and 100-day moving averages” of 88.65 pence and 88.20 pence, respectively, he said.

The euro traded at 89.46 pence as of 8:02 a.m. in Tokyo from 89.49 pence in New York yesterday. The 88.20 pence level would be the lowest since Sept. 15. Europe’s currency has weakened 3.8 percent versus the pound in the past month.

Daily momentum indicators such as the moving average convergence/divergence, or MACD, show a sell signal for the euro against the pound, according to Ng. “The focus is still on the downside,” he said.

MACD charts can indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on nine-, 12- and 26-day periods. Fibonacci charts are based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. A break below support or above resistance indicates a currency may move to the next level.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Support is a level where buy orders may be clustered, while resistance is where there may be sell orders.

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