Pound May Advance 1.5% on Resistance Break: Technical Analysis

The may strengthen as much as 1.5 percent to $1.6425 should it end the day’s trading above a key level of so-called resistance, Commerzbank AG said, citing trading patterns.

Sterling is set to advance to its highest level against the dollar since August if it closes above $1.6167, said Karen Jones, head of fixed-income, commodity and currency technical analysis in London at the bank.

“Pound-dollar is starting to erode the $1.6167 resistance,” Jones wrote in a note to clients today. “This is the October 2011 high and the 61.8 percent retracement of the move seen” in 2011-2012, she said, citing Fibonacci analysis.

The pound appreciated 0.2 percent to $1.6195 at 9:32 a.m. London time, after reaching $1.6207, the highest level since Sept. 2, according to data compiled by Bloomberg. The currency pair last traded at $1.6425 on Aug. 29, the data show.

“Today’s close will prove key,” she wrote. “A close above $1.6167 will imply strength to $1.6425.” That level represents the 78.6 percent Fibonacci retracement of the move down from the 2011 peak, according to Jones.

“While above $1.6062 support, the market remains bid,” Jones said. “Only a move back below here alleviates immediate upward pressure.”

Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. A breach of one level often implies an extension of the move to the next.

Resistance refers to an area on a chart where technical analysts anticipate orders to sell a security to be clustered. A support level is an area where they anticipate buy orders will be grouped. 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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