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Sterling faces losses versus dollar, charts show

Fri, 14th May 2010 12:01

By Neal Armstrong

LONDON, May 14 (Reuters) - Sterling's deteriorating
technical outlook against the dollar serves as a reminder to investors that optimism for UK assets since a new British government took power may not be enough to prop up the pound.

Sterling fell to a one-year low last week as the election produced no clear winner, leading to five days of talks between party leaders.

The formation earlier this week of a Conservative/Liberal Democrat coalition boosted the pound, taking it briefly back above $1.5000.

However, sterling subsequently came within one U.S. cent of last week's low of $1.4475, opening the door to further downside.

'Last week the market eroded the 15-month uptrend from the January 2009 low at $1.3500 and the longer-term risk is on the downside against the dollar,' said Karen Jones, head of technical analysis at Commerzbank.

'Longer-term, we continue to target $1.4255, the 78.6 percent retracement of the move throughout 2009.'

Jones added the $1.4255 Fibonacci level was the last defence for the pound ahead of the $1.3500 2009 low.

For the downside pressure to be taken off, key resistance at $1.5055, the May 10 high, would need to break, according to Taso Anastasiou, technical analyst at UBS in Zurich.

'It is in a downtrend and I think the risk is we test last week's lows again. If that area gives way, we are looking at $1.4112 as next support, previous weekly lows from April 2009,' he said.

Credit Agricole CIB is also bearish on the pound. 'Sterling/dollar is still trending lower on the daily charts. Spot is staying below its 20-week moving average. We would hold a 6-week $1.4930 sterling put option,' they noted.

Bank of Tokyo Mitsubishi UFJ recommended investors sell sterling, targeting $1.3800 -- 7 percent off current levels.


In contrast to the negative outlook for the pound versus the greenback, analysts say the outlook against the euro was looking much more favourable.

'Euro/sterling key support is at 84.00 pence, the June 22, 2009 low. A break below there reinforces the strong bearish trend,' UBS's Anastasiou said.

He said the next target below there was 82.36, the November 20, 2008 low.

Commerzbank's Jones said euro/sterling was staging a short-term bounce but she highlighted a plethora of resistance levels based on weekly moving averages which she said were likely to cap rallies.

'The market has major support at 84.25 and 84.00, a 7-month channel and the 2009 low. Below 84.00 will see the 81.70 downside target engaged,' she said. Keywords: MARKETS/FOREX STERLING

(; Reuters Messaging :; +44-207-542-0876, editing by Nigel Stephenson)

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The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.

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