The euro may strengthen further against the dollar after rallying through $1.292 to form a so- called reverse head-and-shoulders pattern, according to Citigroup Inc., citing technical analysis.
The break of the $1.292 level contributed to the pattern, which is produced when price movements in a security form three bottoms, the middle of which is the deepest. The level that unites the troughs between the peaks is known as the neckline.
“The euro has broken and stayed above levels that suggest that it can push higher,” said Tom Fitzpatrick, chief technical strategist at Citigroup in New York. “People are not as short euro-dollar as they were, but the general sentiment is still bearish.”
He said the euro should rally and test $1.325 versus its U.S. counterpart.
“A close back below support at $1.2920 would question the bullish setup,” Fitzpatrick wrote in a note.
The U.S. dollar has gained 10 percent against the euro since the start of the year. The euro was little changed today at $1.3009.
“The market will need to see more in the near-term, but this is potentially a building block to a higher euro and weaker dollar,” Fitzpatrick said.
In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index.
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