Forex outlook: dollar destined to gain versus euro

The US dollar is destined to continue gaining against the euro next week as the single currency enters a period filled with obstacles, from widening peripheral sovereign bond spreads to a hefty funding schedule and an abundance of key economic data.
While the euro hit a three-week low against the dollar on Friday and breached a widely perceived pivotal level of $1.35, it ended the week nearly unchanged. Technical analysts eyed a close below its 100-day moving average at $1.3542, for the first time since January 17, which would indicate the single euro zone currency should see further downside.
-- Euro seen pressured by widening sovereign spreads
-- Hefty sovereign funding schedule weigh on euro
-- Robust economic data schedule could sway sentiment
"An abundance of factors should work against the euro next week," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. Euro zone debt markets became increasingly unsettled in recent days as Portuguese 10-year bond yields reached record highs, sparking fresh concerns about funding costs in peripheral euro zone economies.
"Concerns about Europe's debt problems have moved back to the forefront and should cause the dollar to appreciate gradually," he said. Uncertainty surrounding the European Central Bank's policy should also weigh on the euro. Bundesbank chief Axel Weber, a known policy hawk, will not succeed Jean-Claude Trichet as president of the ECB, according to reports this week, adding to doubts that euro zone rates would rise in the near future. "We see the euro as entering a more uncertain period ahead of the euro zone leaders' summit in mid-March and the heavier sovereign funding schedule for Portugal and Spain in the coming months," said Vassili Serebriakov, currency strategist at Wells Fargo in New York.
The euro next week could break through the technical support level of $1.35 and trade in the mid- to lower-$1.34 range, Esiner said. Economic data is plentiful next week and many euro-area economies will release their preliminary estimates of fourth quarter GDP growth. Part the dollar's strength this past week could be attributed to short-covering and data indicates more upside potential.
The value of currency speculators' bets against the US dollar rose to its highest level since October, Commodity Futures Trading Commission data showed on Friday, the fourth straight weekly increase. In the US, the economic calendar is full of important indicators with an emphasis on inflation, manufacturing activity and retail sales. The dollar has smartly benefited from a spate of US economic data reflecting a recovery well under way and most strategists are looking for more out-performance on the dollar.
In late afternoon New York trading, the euro was down 0.3 percent to trade at $1.3547, after earlier hitting $1.3497 - its lowest since January 21. Key support for the euro lies at $1.3500, a point that traders cited as an options barrier, with reports of strong bids ahead of that level.
Regular sovereign debt auction activity will come to the forefront again next week, with some 17-21 billion euros worth of European government bond supply out of Italy, Germany, Spain, and France expected. The euro briefly pared losses on Friday after Egyptian President Hosni Mubarak stepped down and handed power over to the Supreme Council of the Armed Forces.
The dollar's out-performance against the yen has been stronger than the euro. The greenback, which gained versus the yen for eight straight sessions, is on track for a weekly gain of 1.5 percent, its best performance in more than a month. The dollar touched its highest level in a month at 83.68 yen, and was last up 0.2 percent at 83.46 yen, boosted by the rising trend in US Treasury yields.