Euro May Fall to $1.3 on Head-and-Shoulders: Technical Analysis

The euro may weaken to $1.3 per dollar after the currency formed a so-called head-and-shoulders pattern, according to City Index Group Ltd.

Europe’s shared currency has fallen below the neckline that connects the $1.34 area in mid-January and the $1.35 level earlier this week with the head at around $1.37, according to James Chen, chief technical strategist at City Index. A break below support at $1.33 may signal further declines in the euro, Chen said. Support refers to an area on a chart where analysts anticipate orders to buy an asset are clustered.

“As head-and-shoulders patterns are considered potential reversal formations, this price action hints at further possible bearishness going forward,” Chen wrote in a research note yesterday. “A strong breakdown below 1.3300 support would confirm this bearishness, with a further breakdown below the 1.3200 area placing the current bullish trend in serious risk of reversal, with an initial objective around 1.3000 support.”

The common currency rose 0.1 percent to $1.3380 at 6:45 a.m. in London today from the close yesterday, when it touched $1.3315, the least since Jan. 24. The euro has gained about 11 percent since July 24, when it sank as low as to $1.2043. It last touched $1.3 on Jan. 4.

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

To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.