Pound May Fall to Two-Year Low Versus Dollar: Technical Analysis

The pound may weaken more than 3 percent to a two-year low against the dollar after it failed to strengthen above a key level of so-called resistance, Commerzbank AG said, citing trading patterns.

Sterling’s inability to break through its 200-day moving average means it is poised to decline over the next one to three months, Karen Jones, head of fixed-income, commodity and currency technical analysis, wrote today in a note to clients. The U.K. currency may fall as low as $1.50, she said.

Repeated failure at the 200-day moving average “finally took its toll and the market has sold off,” London-based Jones wrote. So-called Fibonacci analysis also signaled the pound was poised to decline, she said.

The U.K. currency was little changed at $1.5551 as of 11:18 a.m. in London. The last time the pound declined below $1.50 was in July 2010.

Sterling may find so-called support at $1.5458, which represents a short-term uptrend drawn from its June 1 low of $1.5269, Jones wrote. The currency may also find support at its July low of $1.5393, she said.

Support refers to an area on a price graph where analysts anticipate orders to buy a security. The stronger the support, the more selling is needed to drop below that level. Resistance is where they may be sell orders.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

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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