Bloomberg News

Pound May Weaken to $1.50 in Three Months: Technical Analysis

October 20, 2011

Oct. 20 (Bloomberg) -- The pound may weaken 5 percent to $1.50 within three months as it runs into levels of so-called resistance, Commerzbank AG said, citing trading patterns.

The U.K. currency, which strengthened 1.7 percent against the dollar last week, will seen its gains capped as it reaches its 55-day moving average and the 50 percent Fibonacci retracement of its decline from an April high, said Karen Jones, a London-based technical strategist at the German bank. After hitting this resistance, the pound will fall to its October low of $1.5272 before dropping toward $1.50, Jones wrote in a note to investors.

“The market faces tough resistance,” Jones wrote. Failure to break these levels “should be enough to refocus attention on the downside.”

The pound traded at $1.5794 at 12:51 p.m. in London. It reached this year’s high of $1.6747 on April 28 and then fell to the 2012 low of $1.5272 on Oct. 6, Bloomberg data show. The 55- day moving average was $1.5945 today.

Fibonacci analysis is based on the theory that asset prices tend to 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.

--Editors: Nicholas Reynolds, Mark McCord

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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