Euro May Advance to Two-Month High of $1.31, Gain Says: Technical Analysis

The euro may be poised to advance to the strongest level against the dollar in more than two months as it approaches a critical level after breaking through another one, according to online currency-trading firm Gain Capital.

The 16-nation currency broke through $1.2772, which represents the 50 percent Fibonacci retracement, and is almost at $1.2923, the euro’s 100-day moving average, said Brian Dolan, chief strategist at FOREX.com, in Bedminster, New Jersey, a Gain unit.

“At this point we have to reckon that the euro is going to see $1.30, $1.31,” Dolan said in a telephone interview. “The market is continuing to price in a non-negative outcome from the stress test” of European banks due next week.

The euro gained 1.2 percent to $1.2901 at 2:56 p.m. in New York, from $1.2743 yesterday, after touching $1.2918, the highest level since May 10. An exchange rate of $1.31 would be the highest since May 4.

The currency has climbed 5.3 percent versus the greenback this month as sovereign bond sales in the region attracted investor demand and speculation eased that fiscal problems are worsening. It fell for each of the past seven months. The euro has lost 10 percent this year on concern the sovereign-debt crisis that started in Greece may hamper the economic recovery.

European regulators are examining the strength of 91 banks to determine whether they can survive potential losses on sovereign-debt holdings. Stress-test results will be released July 23.

Spanish Bond Sale

Spain sold 3 billion euros ($3.8 billion) of 15-year bonds, attracting bids worth 2.57 times the securities offered, compared with 1.79 the last time they were sold in April.

“Spain, with its 15 year auction today, suggested that the worst of that sovereign credit crisis has passed,” Dolan said.

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

Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. It is based on a formula developed by a 13th century mathematician, Leonardo da Pisa, known as Fibonacci, who discovered the sequence while studying the reproduction rate of rabbits.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net.

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