Bloomberg News

Euro May Drop to 17-Month Low, Bofa Says: Technical Analysis

December 20, 2011

Dec. 19 (Bloomberg) -- The euro may drop to the weakest level in almost a year and a half after breaking through its low from October, according to Bank of America Corp.

The euro is poised to fall to as low as $1.2510, a level last reached in July 2010, after trading below $1.3146, the lowest reached in October, said MacNeil Curry, head of foreign- exchange and interest-rates technical strategy at Bank of America in New York. The shared currency needs to reach and break through the $1.2901-$1.2859 range before dropping to $1.2533 and then the lower level, he said.

“The trend is clearly still to the downside, and that break through the October lows reaffirms that downtrend,” Curry said in a telephone interview. “If you look at the extremes in sentiment positioning, a squeeze higher would not be surprising, but there you need to be a seller of strength.”

The euro dropped 0.2 percent to $1.3019 at 10:18 a.m. in New York. It broke through the October low on Dec. 13 and weakened to $1.2946 the following day.

Sentiment on the 17-nation currency has reached “bearish extremes,” Curry said, which may spur traders to briefly squeeze out of short positions, driving it to strengthen to as high as $1.3250. Investors should view that level as a selling opportunity, he said.

Futures traders increased their bets to a record level that the euro will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed last week.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 116,457 on Dec. 13, compared with 95,814 a week earlier.

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

--Editor: Kenneth Pringle, Paul Cox

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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