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Euro’s Rally Against Pound Seen Reversing: Technical Analysis

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Dec. 6 (Bloomberg) -- The euro’s rally against the pound during the past month may be set to reverse after the currency failed to break through a key level of so-called resistance, Commerzbank AG said, citing trading patterns.

The 17-nation shared currency, which reached a six-week high against the pound yesterday, may fall as much as 0.5 percent after failing to break through its 55-week moving average of 81.48 pence, Karen Jones, head of foreign-exchange, fixed-income and commodities technical analysis in London, wrote in an e-mailed note. The currency may drop to 80.73 pence, a so-called near-term support level, she wrote.

The 55-week moving average represents “a pivotal resistance,” Jones wrote. “We should see a slide back to the near-term support line.”

The euro was little changed at 81.15 pence at 10:08 a.m. London time after advancing to 81.48 pence yesterday, the strongest since Oct. 24. The currency has gained 1.8 percent against the pound since Nov. 8.

Resistance refers to an area on a price graph where analysts anticipate orders to sell a security will be clustered. Support is where buy orders may be grouped. In technical analysis, investors study charts of trading patterns and prices to predict changes in a security, currency or index.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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