* Euro resistance at $1.3937 and $1.3952; support at $1.3834
* Euro option barrier, stops at $1.39, downside stops at
* Oct 23 EU summit seen as crucial to stop contagion
* Greek debt write-down must be larger - German finmim
By Antoni Slodkowski
TOKYO, Oct 17 The euro hovered near a one-month
high on Monday after the G20 summit boosted hopes that the EU
would decisively address the region's debt woes this week, with
traders saying that further short-covering may see the currency
eke out more gains.
The euro, down 0.2 percent at $1.3855 on slight
profit-taking, rallied 3.5 percent last week after the leaders
of Germany and France pledged to unveil a new package for
solving the two-year crisis at the EU summit on Oct. 23,
including an agreement on how to recapitalise banks.
Hopes for the plan -- which also aims to make Greece's
mountain of debt more manageable and to bolster the firepower of
the euro zone's rescue fund -- helped to lift the euro off a
nine-month low around $1.3145 hit on Oct. 4 and boost it to its
highest in four weeks at $1.3895 on Friday.
"After the developments at the latest summit, we can assume
that at long last concrete measures to solve the crisis will be
implemented next weekend," said Sumino Kamei, senior currency
analyst, Bank of Tokyo-Mitsubishi UFJ.
"But the euro's rally last week was caused mostly by
short-covering. It will have a hard time going above $1.40 ahead
of the EU meeting as contagion fears -- indicated by elevated
levels of European bond yields -- are still showing almost no
signs of abating," said Kamei.
Currency positioning by speculators also suggested that
traders were betting for the EU summit to hit some snags and for
the euro to drop.
"The market is still euro-short and may get caught off guard
quite easily. A short-squeeze or more aggressive short-covering
can see the euro go another leg higher, particularly against the
yen," said a trader for a Japanese bank.
But any potential gains would be hard-won as the euro faces
a thick layer of resistance.
An option barrier and topside stop losses have been detected
at $1.3900, right above the level where euro's rally stalled
last week. Downside stops are also seen at $1.3800.
Having breached that level, the euro may be stopped at
$1.3937 -- resistance marked by a couple of daily highs hit in
September, or at its 55-day moving average near $1.3952.
Support for the common currency is seen around $1.3834 --
roughly matching a 38.2 percent retracement of a fall from
around $1.4940 in May to a nine-month low of $1.3145 hit earlier
Against the yen, the euro was steady at 106.95 yen
, near a five-week high of 107.45 yen hit on Friday and
off a 10-year low of 100.77 yen hit in early October.
While attendees of the G20 summit said the pace of
discussions was encouraging, policymakers are facing stiff
resistance from banks over plans for greater private sector
participation in Greek debt restructuring and moves to force
banks to raise capital.
Underscoring the difficult issues that need to be addressed
in negotiations, German Finance Minister Wolfgang Schaeuble
said on Sunday that Greece's debt crisis could not be solved
without larger write-downs on Greek debt.
In July, private creditors agreed to a voluntary write-down
of 21 percent on their Greek debt, a figure which now looks
insufficient. Euro zone officials said last week that losses are
now likely to be between 30 and 50 percent.
The greenback was little changed at 77.22 yen
after hitting 77.45 on Friday, near a one-month peak set on
Wednesday. Last week the dollar gained 0.6 percent, but remained
tethered to a tight band against the Japanese currency.
The dollar index held near a one-month low of 76.508
hit on Friday after slipping 2.6 percent last week. It last
stood at 76.704.
Federal Reserve Chairman Ben Bernanke and a number of
regional Fed bank presidents take to the podium this week, with
any comments about more monetary easing likely to dent the
Earnings releases from U.S. companies including Citigroup
, Goldman Sachs and Apple could also affect
the euro's performance, which has closely tracked investors'
appetite for stocks and other risky assets.
On Monday, the focus again turns to Europe where German
Finance Minister Schaeuble and European Central Bank Executive
Board Member Juergen Stark are giving speeches in London and