* Euro up 3.5 percent this week vs dollar, more gains seen
* Analysts expect $1.35 resistance to hold for euro
* Australian dollar falls after China tightens
(Adds comments, option activity, updates prices)
By Wanfeng Zhou
NEW YORK, Jan 14 The euro headed for its best
week in more than 1-1/2 years on Friday and could extend gains
after a string of successful securities auctions by indebted
euro zone nations calmed fears of the region's credit crisis.
The euro earlier hit just above $1.3450, edging closer to
key resistance at $1.35, its December high. Analysts said the
euro's recovery could continue in the near term, though gains
above $1.35 could be difficult given nervousness over the large
amount of debt supply from weaker euro zone economies in 2011.
Debt auctions by Portugal, Spain and Italy all saw strong
demand this week, which temporarily eased worries about these
countries ability to fund their debt. Gains in the euro were
also fueled by comments from European Central Bank chief
Jean-Claude Trichet, whose warning on inflation raised
expectations of rising interest rates. For more, see
"The extreme of bearishness is being unwound, but I don't
think we are on the verge of a new round of euro bullishness,"
said David Watt, senior currency strategist at RBC Capital
Markets in Toronto.
"We still don't have long-term solutions and it really
doesn't look like EU policymakers are going to come up with any
long-term solutions," he added. "Interest rates in general in
the EU periphery are too high and the growth outlook is still
In midday New York trading, the euro was down 0.2 percent
at $1.3328, after having earlier hit a high of $1.3458 on
trading platform EBS and crossing above its 100-day moving
average at $1.3410.
On the week, the euro was on track for a weekly gain of
about 3.5 percent, the biggest since May, 2009.
Technical analysts also highlighted a bearish signal after
the 55-day euro/dollar moving average crossed below the 100-day
moving average on Thursday.
Karen Anne Jones, technical analyst at Commerzbank, expects
the $1.35 level for euro/dollar to hold. "Our favored scenario
is for failure ahead of 1.3500 and a slide back to 1.2795, the
61.8 percent retracement of the move seen in the second half of
2010," she said in a note.
The options market is showing less bearish sentiment on the
euro against the dollar.
On Friday, one-month euro/dollar risk reversals, a gauge of
market sentiment, traded at -1.25 EUR1MRR=GFI, still with a
bias toward euro puts, suggesting more investors are betting
the euro will fall than rise. That was up from -1.88 on
The euro was down 0.1 percent at 1.2861 Swiss francs
EURCHF=EBS, off an earlier one-month high of 1.2953. Moves to
counter Swiss franc strength should be left to the central bank
despite the risks posed to the Swiss economy, a crisis meeting
of government, business, bank and trade union representatives
agreed on Friday. [ID:nLDE70D1JJ]
The Australian dollar fell 0.8 percent to US$0.9882
AUD=D4 after China raised banks' reserve requirements by 50
basis points, stoking fears of a slowdown in the Chinese
economy. Australia's strong trade links with China make it
sensitive to Chinese growth expectations. For details, see
The euro was flat at 1.2874 Swiss francs EURCHF=EBS, off
an earlier one-month high of 1.2953. Moves to counter Swiss
franc strength should be left to the central bank despite the
risks posed to the Swiss economy, a crisis meeting of
government, business, bank and trade union representatives
agreed on Friday. [ID:nLDE70D1JJ]
The dollar slipped 0.1 percent to 82.75 yen JPY=. U.S.
data on Friday showed a smaller-than-expected retail sales gain
and a fall in consumer sentiment. See [ID:nN14146780]
"The data reminds people the Fed won't be ending its easing
program or raising rates any time soon, while the ECB yesterday
was talking about inflation. That makes the dollar look really
attractive as a funding currency," said Kathy Lien, director of
currency research at GFT in New York.
(Additional reporting by Steven C. Johnson; Editing by Andrew