Swiss franc keeps firm footing

Swiss franc held near two-week highs on Friday, having powered higher on mounting Middle East tensions, while the U.S. dollar lost steam, putting its rebound this month from a three-month low at risk.

The Swiss currency, traditionally sought in times of heightened geopolitical tension, stayed near two-week highs versus the dollar and euro as unrest spread across the Middle East and North Africa.

Anti-government protesters from Bahrain to Iran were hoping to emulate those who toppled veteran leaders in Egypt and Tunisia. [ID:nLDE71G28W]

The dollar stood at 0.9505 francs CHF=, having fallen as low as 0.9474 francs on Thursday, its lowest in about two weeks, while the euro fetched 1.2922 francs EURCHF=R, having plumbed 1.2890 francs on Thursday, also a two-week low.

The dollar was also broadly weaker against a basket of major currencies as U.S. bond yields declined slightly and expectations of a Federal Reserve rate hike failed to gain momentum.

A surprisingly large increase in initial jobless claims signalled wages were unlikely to pick up any time soon, reducing expectations of a rate hike by the Federal Reserve this year.

The dollar index , which tracks the greenback's performance against a basket of major currencies, dipped to a one-week low of 77.921 before edging back to 78.001 .DXY.

It has broken below a channel support line connecting its three-month low on Feb. 2 and lows on Feb. 9-10, suggesting its recovery from the Feb 2. low is at risk.

Immediate support comes in at 77.88, the 50 percent retracement of the Feb. 2 to Feb. 14 rise, a break of which could open the way for a test of the Feb 2. low of 76.881.

LITTLE FROM G20?

"As long as the dollar index holds above the Feb 2. low, it will be in a holding pattern," said Ayako Sera, market strategist at Sumitomo Trust and Banking, adding that the dollar's fate hinges on Fed policy in the long run.

The Fed's chief, Ben Bernanke, will be speaking in Paris at 1300 GMT on Friday ahead of a meeting of G20 finance ministers and central bankers on Friday and Saturday.

Traders expect little from the G20 meeting.

"I don't think the upcoming G20 meeting will produce many market-moving factors, so currencies are expected to stay in current ranges," said Masanari Takada, foreign exchange strategist at Nomura Securities.

The euro touched a one-week high of $1.3629 EUR=.

"You could attribute some of the euro's gains to lower U.S. yields," said a trader at a Japanese bank,

"But objectively speaking, it's difficult to justify the euro's spike as there aren't too many supportive factors for the currency at the moment. Some players were squaring positions ahead of the U.S. three-day weekend," he added.

The dollar also lost momentum against the yen. The greenback traded at 83.35 yen JPY=, having fallen to 83.15 on Thursday, well off an eight-week high near 84 yen hit on Wednesday.

Traders said heavy offers from Japanese exporters as well as repatriation of earnings by Japanese companies ahead of their financial year-end next month could block the dollar in the 84-85 yen area.

But some speculators and leveraged funds are still caught in yen long positions and if they unwind those positions that could help the dollar break through those resistance levels, said Osamu Takashima, chief Japan FX strategist at Citibank.

Broad weakness in the dollar and ongoing strength in commodity prices helped to keep the Aussie near a one-week high. It traded at $1.0125 AUD=D4, near Thursday's one-week high of $1.0131.

But some market players are concerned that the currency is in for a correction after a strong rally since the middle of last year.

"The market was well short the Aussie with less liquidity in New York ahead of the long weekend. But now that we're at the high end of the range, I'd look to play from the short side," a trader at a U.S. investment bank said.

Recent U.S. data showed long Australian dollar AUD=D4 positions have jumped to the highest level since April 2010. [IMM/FX]

Back then, the Aussie traded sideways for much of the month but subsequently fell more than 12 percent and touched its lowest level of the year in May.

Some market players think a lot of good news is baked into the current exchange rate and the weight of positions may start to impact the currency. [nL3E7DG0GU] (Additional reporting by Shinichi Saoshiro, Chikafumi Hodo in Tokyo, Masayuki Kitano in Singapore, Reuters FX analyst Rick Lloyd in Singapore; Editing by Edmund Klamann)