FOREX-Dollar on track to snap five-week losing streak

* Dollar index heads for first weekly gain in five weeks

* Euro up but struggles near $1.40

* Geithner urges G20 not to use FX for economic advantage
(Recasts, updates prices, adds comment, changes byline)

By Steven C. Johnson

NEW YORK, Oct 22 (BestGrowthStock) – The dollar was on track Friday
to snap a five-week losing streak against major currencies as
traders took profits and the euro repeatedly ran into technical
resistance above $1.40.

Uncertainty over the outcome of a G20 finance ministers’
meeting, where exchange rate policies were on the agenda, also
prompted investors to moderate their dollar selling until the
gathering in South Korea ends over the weekend.

While traders would not rule out another lurch lower for
the U.S. currency, they said extreme bets against the greenback
pointed to a correction. The dollar has lost some 7 percent
against a basket of major currencies during a five-week swoon.

Though down slightly against the euro (EUR=: ) and yen (JPY=: )
on Friday, the dollar index (Read more about the global trade. ) (.DXY: ) was up 0.4 percent since
Monday, aiming for its first weekly gain since mid-September.

“The dollar has fallen quite rapidly over the last month or
so, and positions are somewhat extended, and we saw the tide
turning a bit this week,” said Nick Bennenbroek, currency
strategist at Wells Fargo in New York.

Over the medium term, the dollar still looks like it’s
fighting an uphill battle, traders said. The U.S. Federal
Reserve is expected to announce more monetary easing next
month, likely through direct purchases of U.S. Treasury debt,
while euro zone governments are seen tightening fiscal and
monetary policy, making the euro more attractive to global

Interest rate spreads continued to widen as a result, with
U.S. yields falling as yields on German government debt rise.


But eventually growth differentials may shift in the
dollar’s favor if Fed policy perks up the economy in early
2011, just as euro zone governments begin to slash spending and
raise taxes to get public spending in order.

“Once austerity measures take effect in Europe, the economy
may contract relative to the U.S., a headwind for the euro,”
said Mark McCormick, strategist at Brown Brothers Harriman.

Though the euro is up some 10 percent against the dollar
since September, it has failed to hold ground for long on
several occasions above $1.40.

On Friday, it was up 0.2 percent at $1.3944, off a session
peak of $1.3973. The dollar was down 0.1 percent at 81.22 yen
(JPY=: ), not far from a 15-year low.

McCormick said the euro’s five-day and 20-day moving
averages against the dollar are close to converging, with the
former likely to cross below the latter next week, a bearish
short-term sign.

He said the euro is up about 6 percent on a trade-weighted
basis, bad news for big exporters such as Germany.

“It all adds up to us oscillating over the near term
between $1.35 and $1.40, at least until we see what sort of
quantitative easing the Fed has in store,” McCormick said.

John Taylor, chairman and chief investment officer of FX
Concepts, expects the euro to peak between $1.43 and $1.45 and
says it could sink to parity with the dollar in 2011. For
details, see [ID:nN22168001]


Still, some analysts said there’s room for more euro gains
in the short term, particularly if G20 leaders fail to make any
headway on currency disagreements at a meeting South Korea.

U.S. Treasury Secretary Timothy Geithner, in a letter sent
to G20 finance leaders and seen by Reuters, urged countries to
refrain from using exchange rates for economic advantage and to
adopt targets for their current account balances.

But the proposal ran into stiff opposition from Japan,
Germany and some emerging countries, and analysts said failure
to reach agreement would free traders to keep selling dollars
in favor of the euro, emerging market and commodity-linked
currencies such as the Australian dollar. [ID:nTOE69L00U]

“A new currency accord will be hard to achieve in principle
and even harder to push through in practice, over the hurdles
of domestic political pragmatism,” said Lena Komileva, head of
G7 market economics at Tullett Prebon.
(Additional reporting by Anirban Nag in London; editing by
Jeffrey Benkoe)

FOREX-Dollar on track to snap five-week losing streak