Euro May Decline 1.2% Against Pound on Support Break: Technical Analysis

The euro may weaken 1.2 percent against the pound to as low as 86.12 pence should it break below a key area of support, according to Commerzbank AG, citing trading patterns.

The 17-nation currency failed to strengthen above the 55- day moving average at 88.36 pence earlier this week, meaning it is now poised to decline to a number of support levels including a two-month low set Aug. 5, said Axel Rudolph, a senior technical analyst at Commerzbank in London.

“Failure at the August low at 86.44 pence will trigger further losses to 86.12, the May low and the 55-week moving average,” Rudolph wrote in a report e-mailed to clients today. “Risk remains on the downside.”

The euro was little changed at 87.14 pence at 12:11 p.m. in London. The common currency fell to 87 pence yesterday, the weakest level since Aug. 9, according to data compiled by Bloomberg. It has depreciated 0.5 percent this week.

Rudolph said the euro is poised to extend declines over the next three weeks. Looking at the next three months, technical analysts are starting to focus on a four-year uptrend line currently at 85.56 pence, he wrote.

A support level on a chart is where technical analysts expect orders to buy a currency and its related instruments. The stronger the support, the more selling is needed to drop below that level.

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

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