FOREX-Euro slips but outlook more positive than dollar's

Gertrude Chavez-Dreyfuss
Friday, 25 Oct 2013 | 9:46 AM ET

* Euro falls from near 2-year high after soft Ifo

* Still on course for gains against a weak dollar

* Chart resistance for euro seen at $1.3833

NEW YORK, Oct 25 (Reuters) - The euro dropped from a near two year-high against the dollar to trade flat on Friday after a survey showing German business morale unexpectedly fell for the first time in six months. That data followed sub-forecast euro zone private sector activity surveys on Thursday, suggesting that recovery in the euro zone has stalled. The German business sentiment or Ifo data has sparked concern about the impact of a stronger euro on the region's exporters. The euro's fall was not dramatic and it stayed not far from a near two-year high touched earlier 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 Federal Reserve will maintain its current level of monetary stimulus. "Traders continue to make the euro their favorite anti-dollar trade in light of expectations the Fed will continue its QE (quantitative easing) program well into the start of next year," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York. In contrast, Schlossberg noted that market participants do not expect any change in the European Central Bank's monetary policy despite recent soft euro zone data. That should keep the euro well-bid, at least against the dollar, he added. In early New York trading, the euro fell 0.1 percent to $1.3795, below an earlier high of $1.3833, its strongest level 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 ECB's asset quality review. Some euro zone officials, meanwhile, have shown no concern about a strong euro. ECB Executive Board member Joerg Asmussen was quoted on Friday saying the ECB 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 79.252, off an earlier near nine-month low of 78.998. Economists estimate the 16-day government shutdown shaved as much as 0.6 percentage point off the annualized fourth-quarter gross domestic product, through reduced government output and damage to both consumer and business confidence. However, some analysts said the euro could also be vulnerable to signs of the euro zone's tentative recovery losing steam, especially with a strong euro seen hurting the region's exporters. The euro's trade-weighted index at a two-year high. The dollar held steady at 97.32 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.