Euro May Decline to Six-Year Low on Fibonacci Breach: Technical Analysis

The euro may fall to a six-year low against the dollar should it close below so-called support at $1.2134, Okasan Securities Co. said, citing trading patterns.

The 16-nation currency may weaken beyond the $1.2134 Fibonacci level that represents a 50 percent retracement of its rally from 82.30 cents in October 2000 to $1.6038 in July 2008, said Tsutomu Soma, a bond and currency dealer at Okasan in Tokyo. Should the euro close below $1.2134, it may extend losses to $1.1213, the 61.8 percent retracement level, he said.

“The euro is likely to head for the 50 percent retracement level, after which it may target $1.1213,” Soma said in an interview. “The bias is for the currency to be sold.”

The euro traded at $1.2480 as of 7:10 a.m. in Tokyo from $1.2487 in New York yesterday. The currency declined to $1.2144 on May 19, the weakest since April 2006. It last traded at $1.1213 on Sept. 17, 2003.

Daily momentum indicators such as the moving average convergence/divergence, or MACD, also signal the euro will extend losses against the dollar, Soma said.

MACD charts can be used to indicate whether a price shift is a change in trend or a short-term deviation by comparing moving averages based on 9-, 12- and 26-day periods.

Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. A breach of one level often implies an extension of the move to the next.

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.

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

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