Euro Faces ‘Bearish Setup’ Against Dollar: Technical Analysis
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By Chris Fournier
Dec. 9 (Bloomberg) -- The euro may drop against the dollar to a level last reached in August if it fails to rally past resistance levels, according to Citigroup Inc.
The euro is facing a “bearish setup” versus the greenback, with a large gap between the 55- and 200-day moving averages, Citigroup’s Tom Fitzpatrick and Aron Gera in New York and Shyam Devani in London wrote in a note to clients today, citing momentum indicators.
“Overall, we continue to expect a test of the 200-day moving average, which is now at $1.4118,” the analysts wrote. That would be a drop of more than 4 percent from yesterday’s close of $1.4704.
Investors should watch the resistance levels at $1.48, then a “double-top neckline” at $1.4827 and the 55-day moving average at $1.4854, according to Citigroup.
“A failure to rally through these levels would be an interesting development suggesting a turn back down is likely,” the analysts wrote.
The dollar breached the neckline of a double top versus the euro earlier this week, the analysts wrote. A double top forms when a currency make two consecutive peaks. A break of the neckline, the trough between the peaks, often indicates a further advance may be coming.
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 the upper boundary of a trading range, where sell orders may be clustered.
To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
Last Updated: December 9, 2009 10:53 EST
