* Bini Smaghi says rates may have to be raised
* Euro/dollar technical outlook turns bullish
* China raises bank reserve requirements again
(Updates prices, adds quotes, changes byline)
By Gertrude Chavez-Dreyfuss
New York, Feb 18 (Reuters) - The euro advanced on Friday,
bolstered by increased expectations that the European Central
Bank will raise interest rates, with further gains likely in
the upcoming week given a positive technical outlook.
On the charts, the euro's prospects have turned bullish in
the short term, analysts said, with support clustered around
$1.3250, the 61.8 percent Fibonacci retracement of the January
to February rally.
Resistance lies at $1.3745, the Feb 9 high. A break of that
should bring the rally back though $1.3862, the Feb 2. peak.
Aside from an upbeat technical view, the euro has benefited
from news citing ECB policymaker Lorenzo Bini Smaghi as saying
the central bank will be ready to tighten policy as price
pressures mount. []
"The euro looks very well supported going forward," said
Richard Franulovich, senior currency strategist, at Westpac in
New York. "Aside from a hawkish ECB, central banks have been
buying euros for reserve diversification purposes. I think we
can hit that $1.3862 high again."
Germany's PPI data, which showed its largest monthly
increase in producer prices since mid 2008, emboldened the
stance that the ECB may hike interest rates within the next few
months.
Bini Smaghi's comments come just two weeks after ECB
President Trichet talked down the prospect of rate hikes during
an ECB February press conference, an about face after sounding
hawkish in January.
In mid-afternoon New York trading, the euro was up 0.6
percent against the dollar at $1.3682 <EUR=EBS> after hitting
a high of $1.3716 on electronic trading platform EBS, its
highest in more than a week.
On the week, the euro rose 1.3 percent vs the dollar,
rising after two straight weeks of losses.
The euro climbed 0.4 percent versus the yen to 113.76 yen
<EURJPY=EBS>. Against the Swiss franc, the euro was 0.2 percent
higher at 1.2940 <EURCHF=EBS> francs.
Talk that the ECB was buying Portuguese government bonds
also lifted the euro, analysts said. Yields on five-year
Portuguese government bonds hit a fresh euro lifetime high on
Friday. See GVD/EUR.
The dollar fell 0.4 percent against a basket of currencies
<.DXY>, with the dollar index falling to 77.679.
Surprisingly, the dollar, a traditional safe-haven along
with the Swiss franc, failed to capitalize on heightened
geopolitical tensions in the Middle East.
Westpac's Franulovich said the dollar's weakness amid
tension in that region may be attributed to general low
volatility across all asset classes, prompting investors to
take on more risk. Implied volatilities, which tend to reflect
risk sentiment in the currency market, were trading near
long-term lows.
The Australian dollar <AUD=D4> briefly hit a session low of
US$1.0088 against the U.S. dollar after China's central bank
raised its bank reserve requirement for the second time this
year, following up on an interest rate rise earlier this month.
[]. It was last trading up 0.2 percent at
US$1.0139.
G20 finance ministers and central bankers meet on Friday
and Saturday, but traders expect few new developments.
The dollar fell against the yen for a third straight
session and was last at 83.11 yen <JPY=EBS>, a 0.2 percent
drop.
(Additional reporting by Julie Haviv; Editing by Chizu
Nomiyama)
