2013.08.2706:03:25UTC+00Euro seen cutting surges on fed tapering bets: Market Reversal

The euro’s soared to a six-month high after the trading bloc emerged from its longest-ever recession is set to reverse, exchanging patterns show, as the effect of the stronger economy is overwhelmed by the U.S. paring stimulus.

A measure known as the euro’s moving average convergence-divergence meter moved down under its indication line last week, with momentum turning negative after the currency spiked to $1.3452 on Aug. 20, data compiled by Bloomberg show. The euro go over the upper limit of its 20-day Bollinger band gauge, which also signals a turnaround.

‘Topping Out’

The euro rose almost 5 percent against the dollar in the seven weeks from July 9 to the end of last week and was at $1.3363 as of1:31 p.m. in New York, depreciate 0.2 percent from its close on Aug. 23. Mizuho’s Suzuki sees it declining toward $1.30 in the next two months, while the median forecast of more than 60 analysts surveyed by Bloomberg has the currency plunging to $1.27 by year-end.

The euro “is already topping out” and a decline below $1.3307 will add evidence to this, Axel Rudolph, a London-based technical analyst at Commerzbank AG, wrote in an Aug. 23 report. The currency may reach about $1.28 in one to three months, Rudolph wrote.

Europe’s 17-nation shared currency has defied bears for more than a year, strengthening even as member states including Greece and Portugal struggled to pay their debts and civil unrest spread across the south of the continent.

Hamper Exports

A stronger currency may hamper the euro area’s exports and threaten the economy. Overseas shipments rose a seasonally adjusted 3 percent in June from May, when they dropped 2.6 percent.

MACD Signal

“Markets are moving ahead of central-bank forward guidance at the moment,” Chris Weston, the chief market strategist at IG Markets Ltd. in Melbourne, said in an Aug. 23 phone interview. “If we get the euro above $1.35, you’re going to start seeing a lot more verbal intervention.”

The moving average convergence-divergence, or MACD, is a gauge of momentum and is calculated by subtracting the 26-day exponential moving average from the 12-day average. The signal line is a nine-day exponential moving average of the MACD, and provides buy and sell signals.

The euro rose above the upper limit of its 20-day Bollinger band on Aug. 20 and stayed close to this indicator through the end of last week. The measure, developed by John Bollinger in the 1980s, is used by technical analysts to identify the turning point in an asset’s trajectory.

Options traders are the most bearish on the euro versus the dollar in seven weeks, according to a technical measure known as 25-delta risk reversals. The premium on three-month options granting the right to sell the shared currency compared with those allowing for purchases was at 1.49 percentage points today. It increased to 1.52 percentage points on Aug. 22, the most since July 5 and up from 0.98 percentage point on July 23, data compiled by Bloomberg show.

“The euro’s failed attempts at the $1.34 level that we’ve seen this week set the scene for a move back toward the bottom end of the recent range,” or about $1.32, Mike Jones, a Wellington-based currency strategist at Bank of New Zealand Ltd., said in an Aug. 23 phone interview.

“If we get confirmation that Fed tapering is happening in September, I suspect that will be the missing ingredient for euro weakness, and we’ll see that downtrend kick off,” said Jones, who sees the currency plunging to $1.28 by year-end.