By Candice Zachariahs
Feb. 2 (Bloomberg) -- The euro may face a “correction” that will drive the currency to its lowest level since May after closing below support at $1.3981, Citigroup Inc. said.
Europe’s common currency closed at $1.3863 on Jan. 29, below its 55-week moving average and close to the 200-week moving average of $1.3859. The European currency “typically corrects” by 10 percent before resuming gains, the bank said, citing losses in 1994 and 2004 that preceded U.S. interest-rate increases. The euro lost as much as 9 percent between Feb. 18, 2004, and April 26, 2004. The Federal Reserve in June 2004 raised benchmark borrowing costs for the first time since 2000.
“A 10 percent correction down in the euro from the November high takes the pair to $1.3630 where further support levels converge,” Citigroup technical analysts led by Tom Fitzpatrick in New York wrote in a note to clients yesterday. “Overall further short-term weakness down to the $1.36-plus area would not be surprising.”
The euro traded at $1.3926 as of 9:56 a.m. in Tokyo from $1.3931 yesterday and last traded below $1.37 on May 20. The euro will find buyers in the $1.36 area which includes its 55- month moving average of $1.3589 and the December 2004 high of $1.3666, the bank said.
“We would still be biased to call the move down from the November high a correction down rather than a trend,” the analysts wrote. The euro touched $1.5144 on Nov. 25, the most since August 2008.
Support levels are areas on a chart where orders to buy a currency may be clustered. 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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