BLBG: Euro Weakness Versus Pound Set to Intensify: Technical Analysis
By Daniel Tilles
Jan. 18 (Bloomberg) -- The euro’s decline against the pound may accelerate, according to at least four technical indicators.
The moving average convergence/divergence, or MACD, which signals directional trends for a security, gave a so-called sell signal for the euro on Jan. 13. Parabolic systems, used by traders to track the strength of a trend, switched to a sell a day later. The directional movement indicator, or DMI, also indicated the trend for the common European currency is lower.
The euro is weakening after European Central Bank President Jean-Claude Trichet said on Jan. 14 that the region’s economic outlook remains uncertain and said policy makers won’t rescue Greece as the country struggles to reduce its budget deficit. The pound gained versus the single currency last week on speculation the Bank of England will allow its bond-buying program to expire as the recovery takes hold.
“We have the position with Greece and other outliers continuing to cause concern,” said Paul Day, the Neuchatel, Switzerland-based chief market analyst at MIG Bank SA. “We’re also continuing to monitor the correlation between 10-year gilt yields and sterling-euro. Sterling will rise as gilt yields go up.”
The euro weakened 0.6 percent to 87.93 U.K. pence per euro as of 9:32 a.m. in London, buying less than 88 pence for the first time since Sept. 15. The yield on the 10-year gilt slipped 2 basis points to 3.92 percent. The euro may depreciate to 85 pence in the first quarter, Day said.
Bollinger Bands, which signal when prices may change direction based on a currency’s volatility and moving average, indicated the euro fell through a so-called support level on an intraday basis on Jan. 15.
In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index. Support is where buy orders may be grouped, and resistance is a level where sell orders may be clustered.
To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net
