Dollar to Gain Versus Euro, Test $1.4070: Technical Analysis

(Bloomberg) -- The dollar will probably strengthen to test $1.4070 against the euro next week as it approaches the lower bound of the 16-nation currency’s upward trend and the 50- day moving average, according to Barclays Capital. The greenback rose by the most in seven weeks against the currencies of six major trading partners after a report showed employers eliminated fewer jobs last month than economists forecast. The euro plunged versus the U.S. currency, dropping to within 1 U.S. cent of its 50-day moving average of $1.4080.

“The big level where we could see real damage transpire is on a move through $1.4070,” said MacNeil Curry, a technical analyst at Barclays in New York. “Through there, we probably see three big figures back to the old May breakouts.”

The dollar traded 1.2 percent higher versus the euro at $1.4175 and climbed 2.2 percent to 97.54 yen. The U.S. currency fell 1 percent against the Brazilian real and South African rand, retaining more of its value compared with the yen’s 3.2 percent declines versus those currencies. “With risky assets continuing to outperform, people want to keep that trade on,” Curry said in an interview. “They’re just starting to move out of the dollar and fund these currencies with currencies other than the dollar.”

The Dollar Index, which tracks the greenback’s value against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, rose as much as 1.3 percent to 79.073, the biggest intraday advance since June 15.

The euro may decline to trade between $1.3730 and $1.3780 in the next three weeks, Curry said. In technical analysis, investors and analysts study charts of trading patterns to forecast changes in a security, commodity, currency or index. An upward trend is a series of price movements higher marked by increasing intraday lows.