* Franc breaks through major technical levels vs dollar
* Still most “overvalued” currency in G10 -Morgan Stanley
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
LONDON, July 28 (Reuters) - The Swiss franc fell on Friday and is on track to post its biggest weekly drop against the dollar for more than 22 months after breaking through some major technical levels.
Its weakness againt the euro was even more pronounced as investors grew more optimistic about euro-denominated assets after recent upbeat comments from policymakers.
“There is some rebalancing flows going through from some model-driven funds after euro/franc cracked through the 1.10 level and with very little option barriers at these levels, this can go higher,” Scotiabank’s head of Asian FX sales and trading, Gerrard Katz, said.
The franc was trading 0.3 percent weaker against the dollar at 96.77 cents. It has fallen more than 2 percent this week, its biggest weekly drop since October 2015.
The currency was down half a percent at 1.1328 against the euro and traded below a 200-week moving average for the first time since September 2008, according to Reuters data.
Morgan Stanley strategists expect more losses on the view that the franc remains the “most overvalued currency in the G10 universe” despite this week’s fall.
“The bearish franc trade is an alternative approach to trading better prospects for European Monetary Union economic and political stability,” they wrote in a morning note.
The dollar dipped against its major peers on Friday, with a modest early bounce petering out ahead of the second quarter U.S. economic growth data due later in the session.
The dollar index against a basket of six major currencies was a shade lower at 93.755 after edging up 0.2 percent the previous day.
The market’s focus was now on second quarter U.S. gross domestic product data due at 1230 GMT.
Economists expect the world’s largest economy to have grown about 2.6 percent in the second quarter, from 1.4 percent in the first quarter. A solid outcome will no doubt give the beleaguered dollar some respite from the recent sell-off.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Shinichi Saoshiro in TOKYO; Editing by Louise Ireland)
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