The euro may experience medium-term weakness versus the dollar and pound as it approaches key levels of resistance against the two currencies, according to Bank of America Corp., citing technical indicators.
The 17-nation currency may fall to its lowest level since Dec. 10 if it fails to breach a resistance zone from $1.3487 to $1.3603, MacNeil Curry, head of foreign-exchange and interest-rates technical strategy at Bank of America Merrill Lynch, wrote today in a client note. It might reverse or pause versus sterling at the 85.33 to 85.93 pence-per-euro level, he said.
“When you get up to those levels, based on the head-and-shoulders pattern developing in euro-sterling and euro-dollar, it usually says that we need to start looking for signs of a top, then a turn to the downside,” Curry said in a telephone interview.
A head-and-shoulders pattern comprises three consecutive peaks on a chart, with the middle being the highest. A breach of a neckline, drawn across the base of the three peaks, is seen to indicate that a trend is about to reverse.
The shared currency gained 0.6 percent today in New York to $1.3463 and reached $1.3479, its highest level since Feb. 29, 2012. The euro appreciated 0.6 percent to 85.22 pence and rose to as much as 85.37, the strongest since December 2011.
The euro may pause as it reaches the area of 122.99 to 123.35 yen as the Fibonacci retracement of an October 2008 high and a “pretty sizable” trend-line pivot meet, Curry said.
“You have two pretty big levels coinciding here that could be a bit of a sticking point,” Curry said.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance refers to an area on a chart where sell orders may be clustered, and support is an area where there may be buy orders.
Fibonacci analysis, based on the work of 13th century mathematician Leonardo of Pisa, known as Fibonacci, is founded on the theory that prices rise or fall by certain percentages after reaching a new high or low.