FOREX-Dollar poised to snap five-week losing streak

* Dollar index heads for first weekly gain in five weeks

* Euro up but struggles near $1.40

* FX Concepts see euro topping out between $1.43-$1.45

* Geithner urges G20 not to use FX for economic advantage
(Updates prices, adds detail, comment)

By Steven C. Johnson

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

Uncertainty over the outcome of a G20 meeting, where
exchange rate policies were being discussed, 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 little changed against the euro (EUR=: ) and yen
(JPY=: ) on Friday, the dollar index (Read more about the global trade. ) (.DXY: ) was up 0.7 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 planning to tighten fiscal and
monetary policy, making the euro more attractive to inventors.

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

EURO NEAR PEAK?

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 little changed at $1.3915, off a session
peak of $1.3973. The dollar was up 0.1 percent at 81.44 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 converging, a bearish
short-term sign. Traders also said a weekly close below
$1.3929, the euro’s 200-week moving average, would signal
dollar gains.

“It all adds up to us oscillating … 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, 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:nN22169755]

“I just don’t see all this bullishness on the euro. I don’t
think talk about exit strategies from the (European Central
Bank) is right,” said Taylor, who oversees the world’s largest
currency hedge fund with about $8.5 billion under management.

LITTLE EXPECTED FROM G20

Still, some analysts said there’s room for more euro gains
in the short term, particularly if leaders from the Group of 20
rich and emerging nations 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 current account balances. [ID:nTOE69L00U]

But the proposal ran into stiff opposition from Japan,
Germany, China and others. For more see [ID:nTOE69L0A8] and
[ID:nTOE69K01G]

Analysts said a 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.

“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 Gertrude Chavez-Dreyfuss in New York
and Anirban Nag in London; Editing by Padraic Cassidy)

FOREX-Dollar poised to snap five-week losing streak