Euro May Fall to $1.3 on Head-and-Shoulders: Technical Analysis

The euro may weaken to $1.3 per dollar after the currency formed a so-called head-and-shoulders pattern, according to City Index Group Ltd.

Europe’s shared currency has fallen below the neckline that connects the $1.34 area in mid-January and the $1.35 level earlier this week with the head at around $1.37, according to James Chen, chief technical strategist at City Index. A break below support at $1.33 may signal further declines in the euro, Chen said. Support refers to an area on a chart where analysts anticipate orders to buy an asset are clustered.

“As head-and-shoulders patterns are considered potential reversal formations, this price action hints at further possible bearishness going forward,” Chen wrote in a research note yesterday. “A strong breakdown below 1.3300 support would confirm this bearishness, with a further breakdown below the 1.3200 area placing the current bullish trend in serious risk of reversal, with an initial objective around 1.3000 support.”

The common currency rose 0.1 percent to $1.3380 at 6:45 a.m. in London today from the close yesterday, when it touched $1.3315, the least since Jan. 24. The euro has gained about 11 percent since July 24, when it sank as low as to $1.2043. It last touched $1.3 on Jan. 4.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

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