Pound to Strengthen Versus Yen as Support Levels Hold: Technical Analysis

Investors should buy the British pound against the yen as the currency rallies after holding above so-called support, Citigroup Inc. said, citing trading patterns.

The pound on July 27 rose beyond resistance at 135.64 yen, a trend line that connects the highs of June 3, July 14 and July 26, according to data compiled by Bloomberg. The currency also held above support at 131.30 yen, a 76.4 percent retracement of its fall from the April 26 high to the May 20 low, based on a series of numbers known as the Fibonacci sequence.

The U.K. currency has “broken out of its recent consolidation” against the yen, Citigroup analysts Tom Fitzpatrick in New York and Shyam Devani in London, wrote in a research note yesterday. Sterling “targets 140-142” yen, they wrote.

The pound traded at 135.99 yen as of 12:06 p.m. in Tokyo from 136.44 yen yesterday in New York, when it climbed to 137.56 yen, its highest level since May 13. The British currency is headed for its biggest monthly climb against the yen since March, having risen 2.9 percent since June 30.

The U.S. bank recommends investors purchase the pound at 136.27 yen, with a target of between 141 and 142 yen and an automatic instruction to sell the currency should it weaken beyond 134.30 yen.

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. Resistance is an area where sell orders may be clustered, and support is where buy orders may be placed.

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

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net. Lisa Pham in Sydney at lpham14@bloomberg.net.

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