* Euro up 3.6 percent this week vs dollar, more gains seen
* Best week for the euro vs dollar since May, 2009
* Euro technical factors positive for support and advance
(Recasts, adds comments)
NEW YORK, Jan 14 (Reuters) - The euro headed for its best
week in over 1-1/2 years on Friday and could extend gains next
week after successful securities auctions by indebted euro zone
members calmed fears of a credit crisis in the region.
The euro was last at $1.3345, up 3.6 percent this week and
edging closer to key resistance at $1.35. Analysts said the
recovery could continue in the near term though gains above
$1.35 may be difficult given nervousness over large debt supply
from weaker euro zone economies in 2011.
For now, demand for Portuguese and Spanish debt and
expectations for higher euro zone interest rates have
eradicated most concerns of fiscal woes on the euro zone
periphery.
Add in bullish technical factors and few see the euro
ending the recent rally.
"We're at a bit of a pivot point but the same momentum
continues," said Fabian Eliasson, vice president of currency
sales at Mizuho Corporate Bank in New York. "There is positive
momentum from several countries' strong bond auctions. We'd
need to see something new come out" to change direction.
Further support comes from investors digesting the $199
billion jump in China's foreign exchange reserves in the final
three months last year, the most ever for a quarter.
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That dictates China needs to put upwards of $15 billion a
month into European assets just to maintain its current
portfolio allocation.
China has been working for years to diversify its official
currency reserves, which now sit at a record $2.85 trillion,
and the euro has been the primary alternative to the dollar,
taking an estimated 25 percent, or about $710 billion.
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"The floor is in for the euro," said Douglas Borthwick, a
managing director for trading at Faros Trading LLC, a forex
execution firm in Stamford, Connecticut who sees the euro
between $1.33 and $1.35 in the week ahead and a rally to $1.50
by year end.
Borthwick's euro view is in sharp contrast to his view for
the U.S. dollar which is again mired by talk of the U.S. losing
its triple A credit rating because of rising national debt.
"The dollar is on a continued weakening bias, correcting
from an overbought top," said Borthwick.
Technical factors will flash green for the euro rally if
the euro/dollar can manage a close above $1.3307, the 50-day
simple moving average, Borthwick said.
January 10 saw the 50-day simple moving average move below
the 100-day simple moving average which would argue for the
euro going lower, said Borthwick.
Indeed model accounts, those that use trading formulas for
buy and sell signals, are shorting the euro based on that
signal but the 50-day again rising above the 100-day would push
model accounts to again go long the euro, prompting more
buying, he said.
The euro's gains against the dollar this week again pushed
it back above the 200-day simple moving average, the third test
of that support since November 29, using EBS data. To technical
analysts, the $1.3071 level is becoming major support.
The euro received another buy signal on Thursday when the
12-day and 26-day moving average convergence/divergence line
crossed above the nine-day signal line. The MACD is used in
technical analysis as an indicator of short-term momentum by
focusing on exponential moving averages and closing prices.
To be sure, some investors are more cautious about the
euro's prospects after the currency's rapid rise this week.
Alan Wilde, head of fixed-income and currency at Baring
Asset Management in London. Baring Asset Management oversees
$50 billion in assets said earlier this week that short-term,
there was scope to rally back to the $1.33-$1.34 levels from
where it broke down in December.
"But the prevailing sentiment is that we test $1.20 and
maybe lower over the next few months," said Wilde. "This
assumes that the (European) issues do not go away and that
countries like Portugal cannot fund indefinitely at 7
percent."
"A failed auction, civil disobedience in defiance of
austerity measures or widening spreads in Spain and Italy, say,
could easily be the tipping point," Wilde said.
(Additional reporting by Steven C Johnson)
(Reporting by Nick Olivari; Editing by Andrew Hay)
