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Pound Set to Slip to Month-Low Versus Dollar: Technical Analysis

The pound may slide toward its lowest level in more than a month against the dollar after it failed last week to advance above key levels of so-called resistance, Commerzbank AG said, citing trading patterns.

Gains that pushed the currency to as high as $1.6217 on Oct. 5 were probably “nothing more than corrective and leave the market to ease back towards the $1.5912/$1.5900 zone,” Karen Jones, head of fixed-income, commodity and currency technical analysis in London, wrote in a note to clients today. Rallies may stall between $1.6260 and $1.6310, she wrote.

A decline to $1.59 would represent a 50 percent retracement of the pound’s rally since July, Jones wrote, referring to so-called Fibonacci analysis. Sterling may face resistance at $1.6228 and Commerzbank will maintain its “negative bias” while the currency pair trades below $1.6310, she said.

Sterling weakened 0.4 percent to $1.6072 at 10:40 a.m. London time. The pound hasn’t traded below $1.59 since Sept. 6, according to data compiled by Bloomberg.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a bond, commodity, currency or index. Resistance refers to an area where technical analysts anticipate sell orders to be clustered.

Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a high or low.

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