A chart of the 16-nation currency shows its 20- and 90-week moving averages are falling toward the 200-week indicator, suggesting a dead cross pattern will be created, said Yoh Nihei, Tokyo-based trading group manager at Tokai Tokyo. A dead cross appears when a short-term average drops below a longer-term one and signals a security is poised to extend losses.
“The euro may dip below $1.30 and test lower prices,” Nihei said in an interview yesterday. An ichimoku chart also indicates “the euro is still in a downtrend,” he said.
The euro traded at $1.3581 as of 8:08 a.m. in Tokyo after declining from last year’s high of $1.5144 in November. The currency slid 5.7 percent against the dollar last quarter, the biggest three-month drop since September 2008.
As the euro weakens, it is likely to encounter levels of support at $1.3268, $1.3091 and $1.2457, Nihei said. Support refers to an area where buy orders may be clustered.
The first support level represents the euro’s lows from March 25 and 26, which was the weakest since May. The second and third levels represent 76.4 percent and 100 percent Fibonacci retracements of the currency’s advance from $1.2457 on March 4, 2009, to $1.5144 on Nov. 25, Nihei said.
Fibonacci analysis is based on a theory that prices rise or fall by certain percentages after reaching a high or low. A break above resistance, or below support, indicates a currency may move to the next level. An ichimoku chart predicts future trends by analyzing the midpoints of historic highs and lows.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
