Euro Break May Trigger Decline to Year’s Low, JPMorgan: Technical Analysis

The euro’s tumble below its weakest levels against the dollar reached during October and November suggests the 17-nation currency may weaken to its lowest level this year, according to JPMorgan Chase & Co.

“If you see an intraday break like this it’s a sign that the market is weak and there is still a trend for the market to go lower, until we see the euro get above the levels it broke down today, which is $1.3145 and extends up to $1.3212,” said Niall O’Connor, a New York-based technical analyst with JPMorgan. “That we’ve broken some key chart levels is important and suggests that there is still downside risk with potential to extend to the January low.”

The euro traded 0.8 percent weaker at $1.3080 at 12:22 p.m. after earlier gaining as much as 0.4 percent versus the greenback.

A break below $1.3047, the 61.8 percent Fibonacci retracement level from a four-year low reached in June 2010, may send the shared currency to the weakest this year, according to O’Connor. The 2011 low is $1.2867, reached on Jan. 10.

“Some people will look at $1.30 as a mental level, but there is nothing technical there stopping it,” O’Connor said. “If we start breaking $1.2860, it’s hard to spin that in a positive way.”

In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index. Technical analysts who use the Fibonacci ratios, described by Leonardo of Pisa in “Liber Abaci” in 1202, believe the price of an asset may reverse an earlier gain or decline after reaching certain levels.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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