Australian Dollar May Extend Slide on Fibonacci Break: Technical Analysis

by Candice Zachariahs - Jan 21, 2011 8:37 AM GMT+0800

The Australian dollar may extend losses after dropping the most in eight weeks yesterday if it closes below a key level of support at 98.70 U.S. cents, BNP Paribas SA said, citing trading patterns.

A decline in the so-called Aussie below that level would signal a further drop toward 98 U.S. cents, near the 61.8 percent Fibonacci retracement of the currency’s rally from Dec. 1 to Dec. 31, according to Andrew Chaveriat, a technical analyst at the world’s biggest bank by assets. The currency would then target the 76.4 percent retracement of that move, bringing it down toward 97 cents, he said

“If we get below 98 cents then you have some risks down towards a couple of levels -- one would be 97 cents,” New York- based Chaveriat said. “Even 96.25, which is quite an aggressive sell-off, could potentially be seen if we replicate the sell-off of the first couple of weeks” of the year.

Australia’s currency traded at 98.64 cents as of 11:34 a.m. in Sydney after sliding 1.4 percent yesterday, the biggest decline since Nov. 26. The Aussie climbed to $1.0077 on Jan. 19, the strongest level since Jan. 4. It last closed below 98.70 cents on Dec. 10.

Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. A support level is an area where traders anticipate buy orders to be clustered.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.

To contact the reporter on this story: Candice Zachariahs in Sydney atczachariahs2@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.