The euro may rise 1.9 percent against the dollar after climbing above a key level of resistance, Morgan Stanley said, citing trading patterns.
The 17-nation currency is poised to extend this month’s advance after strengthening above the peak set on Sept. 17, according to strategists at the company including Hans Redeker and Ian Stannard in London. The next target is the high set at the end of March, they said.
“The top end of the three-month range has been breached, suggesting the way towards our $1.34 target has been opened,” the strategists wrote in a note to clients. “The euro has extended the recovery trend and we expect further gains in the coming week.”
The shared currency fell 0.1 percent to $1.3154 at 2:29 p.m. London time after rising to $1.3190, the highest level since May 2. The target of $1.34 was chosen because it coincides with the peak of $1.3386 set on March 27, Morgan Stanley said. The last time the currency reached $1.34 was on Feb. 29.
Morgan Stanley recommends investors bet the euro will extends its 1.3 percent gain this month and place an automatic order to exit the trade if the currency weakens to $1.3040.
The strategists said one risk to further euro gains is the German Ifo institute’s business climate report on Dec. 19. The ZEW Center for European Economic Research said on Dec. 12 that its gauge of the country’s investor confidence jumped to a seven-month high in December.
“Market expectations regarding German Ifo have likely been increased following the strong reading of the ZEW, leaving open the potential for disappointment,” the report said.
Resistance is an area where technical analysts anticipate sell orders to be clustered.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a bond, commodity, currency or index.