Oct. 12 (Bloomberg) -- The euro may rise to $1.40 if it breaks through a key level that marks the midway point of the shared currency’s drop against the dollar since the end of August, according to Citigroup Inc.
The 17-nation currency today approached the 50 percent Fibonacci retracement level of its fall since Aug. 29, at $1.3848. A break through there could drive it $1.4050, where the 200-day moving average converges with the 50 percent retracement level from the euro’s high this year in May, said Tom Fitzpatrick, chief technical analyst at Citigroup in New York.
“If we close above it, it would suggest we are in danger of seeing an extension in terms of this move,” Fitzpatrick said. The euro’s rise this week has been “pretty vicious. The market got caught a little bit ahead of itself.”
The euro rose 1.3 percent to $1.3812 at 10:31 a.m. in New York, touching $1.3817. It has appreciated 3 percent this week, paring its drop since Aug. 29 to 5 percent.
Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. It is based on a formula developed by a 13th century mathematician, Leonardo of Pisa, known as Fibonacci, who discovered the sequence while studying the reproduction rate of rabbits.
The euro rose this week after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to deliver a plan to support banks and repeated a commitment to keep Greece in the single-currency bloc. European Commission President Jose Barroso today called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to master Europe’s debt woes.
--Editors: Dave Liedtka, Paul Cox
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