Euro May Be Poised for `Explosive Breakout,' Citigroup Says

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Euro May Be Poised for `Explosive Breakout,' Citigroup Says

By Jamie McGee

July 2 (Bloomberg) -- The euro may be nearing an ``explosive breakout,'' reaching record levels against the U.S. dollar, according to a Citigroup Global Markets Inc. research note.

The trading pattern, including a so-called double-bottom that tested lows, resembles the one before Feb. 26 that preceded the surge to $1.6019 per euro, analysts Tom Fitpatrick in New York and Shyam Devani in London wrote in the note today.

`` We cannot help but feel that things might be about to get very bad again,'' the analysts said, referring to the possible combination of falling bond yields and rising oil prices.

The exchange rate may approach $1.69 per euro by September if previous patterns are duplicated, the report said.

The dollar fell to a two-month low, trading at $1.5864 at 12:35 p.m. in New York, down 0.5 percent from $1.5793 yesterday. It earlier touched $1.5887, the weakest since April 24. The dollar reached an all-time low of $1.6019 per euro on April 22.

Crude oil rose 1.2 percent to 142.67 per barrel in trading on the New York Mercantile Exchange today. It reached a record $143.67 per barrel on June 30.

Two previous breakouts, from August to November and February to April, were accompanied by financial market upheaval and interest-rate spreads favoring Europe, where benchmark lending rates exceed those in the U.S.

Higher European Rates

``While we believe it to be misguided, the ECB will raise its rate tomorrow and one cannot help feel that the rhetoric in recent days suggests that we may be surprised by elevated hawkish language and the suggestion of more to come,'' the analysts said, referring to the European Central Bank meeting.

The ECB is forecast to raise its benchmark lending rate by a quarter-percentage point, to 4.25 percent, according to the median estimate of 58 economists Bloomberg surveyed. The Federal Reserve left its key rate unchanged at 2 percent on June 25.

The dollar will rise to $1.50 against the euro by the fourth quarter, according to the median estimates of 44 economists in a Bloomberg survey.