Citing technical pat terns, Citgroup Incorporation has advised investors to sell the euro against the dollar as the common European currency follows gold lower.

The euro may weaken to between $1.3300 and $1.3350, Citigroup analysts, Tom Fitzpatrick and Shyam Devani, wrote in a note to clients yesterday.

Investors should exit the trade, which was started at $1.3800, if the euro appreciates to $1.3945, they said.
Gold may decline to less than $900 an ounce, from more than $936 today, the analysts said, citing a so-called head-and-shoulders pattern for the precious metal.

“Gold has been a very good guide recently to the direction of the euro-dollar,” New York-based Fitzpatrick and Devani in London wrote.

“Gold has just completed a well defined head-and- shoulders top with a break of $945 that suggests a move below $900 again. Euro-dollar is lagging, but setting up a very similar pattern with a neckline at $1.3815.”

A head and shoulders is formed when a currency makes three consecutive peaks, with the middle being the highest.
A so- called neckline is an approximately horizontal line connecting at the two lowest points between the three peaks and may signal the reversal of a trend if breached.

The euro traded at $1.3918 as of 10:07 a.m. in London, from $1.3803 yesterday. The single currency weakened 0.4 per cent against the dollar this year.

Meanwhile, the pound rose from a one-week low against the dollar after a report showed U.K. inflation slowed in May less than economists predicted, boosting speculation the Bank of England will raise interest rates.

Sterling also advanced versus the Swiss franc after the Office for National Statistics said consumer prices rose an annual 2.2 per cent, compared with 2.3 per cent in April.

The rate was forecast to fall to 2 per cent, according to a Bloomberg survey. Policy makers cut the main rate to 0.5 per cent in March and began buying bonds to lower borrowing costs.

“The higher-than-expected inflation number is clearly supporting sterling,” said Marcus Hettinger, a foreign-exchange strategist in Zurich at Credit Suisse Group AG, Switzerland’s largest bank by market value.

“The market is pricing in higher interest rates.”The pound advanced for the first time in three days, rising 0.8 per cent to $1.6448 at 5:27 p.m. in London.

It earlier fell to $1.6215, the lowest level since June 9. Sterling was little changed at 84.41 pence per euro and appreciated 0.3 per cent to 1.7856 Swiss francs.

“The currency is increasingly sensitive to signals on inflation and associated interest-rate decisions, however distant they may be,” said Gregory Claeys, an economist in Paris at Calyon, the investment-banking unit of Credit Agricole SA.