Dec. 7 (Bloomberg) -- The euro may reverse recent gains versus the dollar should the currency fail to advance above so-called resistance at $1.3471, according to Forecast Pte, citing trading patterns.
The $1.3471 level represents the 38.2 percent retracement of the euro’s decline from its Nov. 4 high of $1.4282 to the Nov. 30 low of $1.2969, based on a series of numbers known as the Fibonacci sequence. The euro has remained below this resistance level in the past two days, suggesting the currency’s “upside is still limited,” said Pak Lai Ng, a technical analyst at Forecast in Singapore.
“The euro hasn’t even retraced the 38.2 percent level of the recent fall, and this is capping the currency,” Ng said in an interview. “It’s bearish, and the euro may extend the November drop.”
The euro traded at $1.3309 at 7:49 a.m. in Tokyo from $1.3308 in New York yesterday, when it rose to $1.3442, the highest level since Nov. 23. Since touching a two-month low of $1.2969 on Nov. 30, the euro has rebounded 2.6 percent.
The common currency is likely to “test the $1.3000 level” if it holds below $1.3471, Ng said, referring to the Nov. 30 low of $1.2969 and the Dec. 1 low of $1.2971, based on data compiled by Bloomberg. “If it’s going to test, it’ll probably go below toward the August-September lows” of $1.2588 and $1.2644, respectively, Ng said.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance or below support indicates a currency may move to the next level.
In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.
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