Euro May Drop to 3-Year Low Versus Pound: Technical Analysis

The euro may drop to the lowest level in more than three years against the pound, according to UBS AG, citing trading patterns.

The 17-nation currency may decline to 77.84 pence after it fell below the so-called trendline that connects the lows of May and June. The target is the 61.8 percent retracement from the January 2007 low of 65.36 to the December 2008 high of 98.03 on the Fibonacci chart, according to Richard Adcock, a London based fixed-income and foreign exchange technical strategist at UBS. The last time the euro traded at 77.84 was in October 2008.

The euro “has seen a trade below the uptrend connecting the recent lows, suggesting a bearish breakout has developed and that further liquidation is on the cards over the coming weeks,” Adcock, wrote in a research note yesterday. “The next bear leg to extend the long term downtrend has begun, with the risk to the 62 percent retracement.”

The euro was at 79.75 at 11:31 a.m. in Tokyo from 79.81 yesterday, when it touched 79.65, a level unseen since May 16.

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 prices tend to drop or rise by certain percentages after reaching a high or low.

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