The U.K. pound may extend declines to a 10-week low against the dollar should it drop through its 200-day moving average, Credit Suisse Group AG said, citing trading patterns.
Sterling has “broken to a fresh lower low, and is now set to test the 78.6 percent retracement” of its advance from Aug. 28 to Sept. 21, according to technical strategist Cilline Bain in London, referring Fibonacci analysis.
“We continue to be bearish” on the pound versus the dollar, Bain said. “It continues to trade in a steady downtrend. The market is probably going to have a look at that 200-day moving average in the next 48 hours.”
The pound fell 0.1 percent to $1.5880 at 12:34 p.m. London time after sliding to $1.5870, the weakest level since Sept. 5. The 200-day moving average was at $1.5851. The last time sterling traded at $1.5772 or lower was on Aug. 30.
Britain’s currency may first weaken to a “support cluster” around its 200-day average between $1.5873 and $1.5851 and if that fails to hold it will extend its drop to trend-line support at $1.5772, according to Credit Suisse.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Support refers to an area where buy orders may be clustered.
In technical analysis, investors study charts of trading patterns and prices to predict changes in a security, currency or index.