Euro posts second weekly gain; Aussie stabilizes
* Dollar should remain firm on U.S. outlook
* EZ finance ministers meet net week to discuss rescue deal
By Gertrude Chavez-Dreyfuss
NEW YORK, March 23 (Reuters) - The euro climbed to a
three-week peak against the dollar on Friday as concerns about a
slowdown in the euro zone ebbed, but the euro could reverse
gains next week as bond auctions in Spain and Italy draw
scrutiny.
Any sign of eroding confidence in the bonds of these
peripheral countries could undermine the euro. Economic data
from Germany and a meeting of European finance ministers will
also be key events for the week.
"We think euro/dollar is headed lower," said Aroop
Chatterjee, currency strategist at Barclays Capital in New York.
"European economic data continues to be lackluster. We saw a
snapback in data earlier this year, but it's been primarily
sentiment-driven.
"The euro appears to be stuck in a trading range and our
house view is that it would go gradually lower to $1.20 in 12
months," he added.
The dollar is seen remaining supported by an improving
economic landscape in the United States that contrasts starkly
with European countries that are teetering on the brink of
recession or are already in one.
Data on sales of new U.S. homes on Friday, for instance
backed the view the country's housing sector is on a stable path
to recovery, something that is seen as key to the health of the
overall economy.
But on Friday overall, worries about faltering global growth
in the euro zone and China eased a day after hitting stocks and
riskier currencies, tempering demand for safer bets such as the
dollar and the yen.
The euro last traded at $1.32700, up 0.6 percent, after
hitting a three-week high of $1.32940 earlier in the
global session. It was also up from Thursday's low of $1.31334
and posted its best weekly performance since late February.
A key level of resistance for the euro is $1.33, and a break
of that level would likely move it up toward $1.3500.
The Australian dollar, meanwhile, was up 0.9 percent at
US$1.0479 after hitting a two-month low of US$1.0336
the previous session, while the New Zealand dollar advanced 1.1
percent to US$0.8188.
"Today says: 'Don't worry, be happy'," said Jonathan Lewis,
chief investment officer at Samson Capital Advisors, which has
assets under management of around $7 billion.
"That's what it means when the best performing currencies on
the day are commodity and growth-oriented ones like the New
Zealand and Australian dollars, and the Norwegian krone and the
Japanese yen is near the back of the bus."
Against the yen, the greenback was down 0.1 percent at
82.441 yen, while the euro rose 0.4 percent to 109.400
yen.
The greenback has gained more than 7 percent against the yen
since the start of this year. The euro has jumped 9.8 percent
versus the Japanese currency, with gains accelerating after the
Bank of Japan, in a surprise move in February, initiated more
quantitative easing.
The relationship between risk appetite and the dollar has
become more complicated, according to Chris Fernandes, vice
president, senior foreign exchange adviser for the capital
markets division at Bank of the West in San Ramon, California.
"Whereas in the past the dollar would tend to fall as risk
appetite was rising, the dollar is now benefiting from pro-risk
developments, as U.S. economic data has generally bested
expectations recently," he said.
The recent dollar rally, however, has been tempered by the
possibility the Federal Reserve could launch a third round of
quantitative easing, said Fernandes, who helps oversee almost
$10 billion in assets under management.
If the Fed were to more quantitative easing, it would be
negative for the dollar, because it is tantamount to printing
money and dilutes the greenback's value.
Euro zone finance ministers are moving closer to agreeing a
combined rescue fund of around 700 billion euros ($924 billion)
in Copenhagen next week and anything higher would probably be
too ambitious, euro zone diplomats said on Friday.
A larger euro zone rescue fund would go a long way toward
reassuring markets a viable firewall is in place should
Portugal, Italy or Spain continue to struggle.
"I believe we may be in for a bit of range-trading right now
in the major currency pairs, with the EUR/USD moving between
$1.3000-1.3500, and the USD/JPY having a bit more upside,
looking at 82.00-85.00," said Bank of the West's Fernandes.
