Oct. 13 (Bloomberg) -- The euro may decline to $1.20 within three months as its runs into resistance levels following its rally over the past week, according to Commerzbank AG, citing trading patterns.
The shared currency, which has strengthened 2.2 percent since Oct. 6, will see gains capped as it reaches its 200-day moving average and the 50 percent Fibonacci retracement of its decline from an August high, said Axel Rudolph, a London-based technical strategist at the German bank. After hitting resistance, the euro will fall to its January 2011 low of $1.2860 before dropping toward $1.20, he said.
“As long as the 200-day moving average at $1.4064 caps, our overall bearish bias will remain intact,” Rudolph wrote in a note to clients. “The first sign of a reversal lower taking place will be a drop through Wednesday’s low at 1.3582.”
The euro depreciated 0.4 percent to $1.3737 at 4:41 p.m. in London. It fell to this year’s low of $1.3146 on Oct. 4.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. Resistance refers to an area where selling orders may be clustered.
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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