FOREX-Below-forecast German Ifo pushes euro off highs

Reuters

* Euro comes off TWO-year high after below forecast Ifo

* Still on course for gains against a weak dollar

* Chart resistance for euro seen at $1.3833

By Jessica Mortimer

LONDON, Oct 25 (Reuters) - A survey showing German business

morale unexpectedly fell for the first time in six months tipped

the euro off a two-year high against the dollar on Friday.

After sub-forecast euro zone private sector activity surveys

on Thursday, the Ifo data may spark concern about the impact of

a stronger euro on the bloc's exporters.

The euro's fall was not dramatic and it stayed near an

earlier two-year high against a weak dollar. Many analysts say

the euro can rise towards $1.40 as investors seek alternatives

to a dollar hobbled by expectations the U.S. Federal Reserve

will maintain its current level of monetary stimulus.

The euro fell 0.1 percent at $1.3790, below an

earlier high of $1.3833, its strongest since November 2011.

Technical analysts said the euro faced stiff resistance at

Friday's $1.3833 peak - the 61.8 percent retracement of the

currency's fall between May 2011 and July 2012.

"The euro is due for a short-term correction and could drop

towards $1.3720," said Hans Redeker, head of global foreign

exchange strategy at Morgan Stanley. "But by the first week of

December it could be as high as $1.42."

He expected the euro to be one of the main beneficiaries of

a weaker dollar, and as euro zone banks sell assets to foreign

investors to shrink their balance sheets in preparation for the

European Central Bank's Asset Quality Review.

ECB Executive Board member Joerg Asmussen was quoted on

Friday saying the euro zone central bank is not concerned about

the level of the euro, which some traders may see as a green

light to continue buying.

The dollar edged up 0.1 percent against a currency basket to

79.236, off an earlier near nine-month low of 78.998.

There are concerns the U.S. economy may have been hit hard

by the 16-day government shutdown earlier this month, leaving

the Fed reluctant to reduce monetary stimulus any time soon.

"There is still a theme of general dollar weakness and

euro/dollar is more of a dollar story. With disappointing U.S.

data you could see Fed tapering expectations pushed far into

next year," said Lutz Karpowitz, currency strategist at

Commerzbank in Frankfurt.

However, some analysts said the euro could be vulnerable to

signs of the euro zone's tentative recovery losing steam,

especially with the currency's trade-weighted index

at a two-year high.

The dollar held steady at 97.24 yen, off a two-week

low of 96.94 yen, but still below its 200-day moving average, a

key chart level, at 97.34 yen, suggesting room for more falls.

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