* Dollar higher vs euro; $1.40 remains key resistance
* Weekend G20 meeting could spur dollar strength
* Stretched positions suggest caution for dollar bears
(Updates prices, adds detail, changes byline)
By Wanfeng Zhou
NEW YORK, Oct 21 (Reuters) - The U.S. dollar rebounded in
volatile trade on Thursday after the euro failed again to hold
above $1.40 and as investors turned cautious before a G20
finance ministers meeting this weekend.
The euro had earlier climbed to a high around $1.4050 but
failed to sustain gains above key resistance at $1.40 for a
second day this week. It also came under pressure after U.S.
stocks lost gains.
The euro will likely stay in its recent range of $1.3650
and $1.4150 in the coming days as investors wrestle with
uncertainty over the size of expected U.S. monetary easing,
traders said. The Federal Reserve is expected to pump more
money into the economy next month, likely through direct
purchases of Treasury debt.
"There seems to be a willingness to sell euros above
$1.40," said John McCarthy, director of FX trading at ING
Capital in New York. "We sort of ran into the top of the recent
trading ranges."
In afternoon trading, the euro fell 0.3 percent to $1.3924,
after rising as high as $1.4051 on trading platform EBS, with
traders citing selling by Middle East accounts.
Many analysts note $1.40 as a key resistance level, which
draws corporate selling interest as companies repatriate their
earnings from Europe.
Caution ahead of the G20 meeting also helped the dollar
recover ground, and analysts said any joint statements by
members agreeing not to devalue their currencies could spur a
dollar rebound.
Earlier, the dollar rose after U.S. Treasury Secretary
Timothy Geithner said major currencies were in balance,
although analysts argued Geithner's comments did not mark a
significant change in U.S. policy.
While traders were far from convinced G20 ministers would
solve once and for all their exchange rate disagreements, some
said there was reluctance to take extreme positions.
"There's so much uncertainty and I really think we'll see a
lot of position-jockeying ahead of the weekend," said Greg
Salvaggio, vice president of trading at Tempus Consulting. "I
wouldn't be surprised to see some dollar strength ahead."
Chris Turner, chief currency strategist at ING, said that
if the G20 acknowledges that emerging Asia will have to reform
their exchange rate systems and embrace flexibility, it would
make a good start to address the global currency war.
"Such an outcome should trigger more flows into the short
dollar/Asia trade," he added.
Against the yen, the dollar was up 0.2 percent at 81.28 yen
<JPY=> after hitting a session low of 80.91, not far from a
15-year low at 80.84 set on EBS on Wednesday.
Sterling <GBP=> fell 1 percent to $1.5688 as weak retail
sales data stoked speculation that the Bank of England could
engage in more monetary easing.
The prospects for more Fed easing has pushed the dollar
down 7 percent against major currencies since September.
But the size, shape and timing of the Fed's move has left
investors guessing, and nearly two months of speculation has
given them plenty of time to sell the dollar, pushing it to
extreme levels against some major currencies.
"There is a touch of apprehension in the market, and
concerns are building about how hard the Fed's going to hit and
what the market reaction will be," said C.J. Gavsie, managing
director of FX sales at BMO Capital Markets. "So we've got to
be cautious about getting too bearish on the dollar."
(Additional reporting by Steven C. Johnson; Editing by Kenneth
Barry)
