Euro May Decline to June 2010 Low Versus British Pound: Technical Analysis

The euro may drop to its June 2010 low against the pound if it fails to strengthen above a key resistance level, Commerzbank AG said, citing trading patterns.

A failure to sustain an increase above 83.71 U.K. pence, the so-called three-month downtrend channel, may see the euro fall to as low as 80.67 pence, a level last seen on June 29, 2010, according to Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank in London.

The euro is “probing the top of the down channel at 83.71 and ideally we would like to see the correction higher to falter here, leaving our bearish outlook untarnished,” she wrote today in a note to clients. “We look for this to hold and provoke failure,” she said, referring to the resistance level.

The euro traded at 83.46 pence at 12:45 p.m. in London after briefly rising to 83.78 pence, the strongest since Dec. 30. The 17-nation currency has appreciated 0.8 percent this week, poised for a second weekly gain.

If the euro falls to 83.05 pence, investors should place bets it will drop to as low as 81 pence, Jones wrote in the note. They should close their positions if the euro strengthens to 83.80 pence, she wrote.

Resistance refers to an area where analysts anticipate orders to sell a security. The stronger the resistance, the more buying is needed to rise above 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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