* Dollar weak before Bernanke speech, inflation data
* Dollar index may test trendline near 76.00, then 2009 low
* 76.4 pct retrace of euro's 2009-2010 drop lies at $1.4374
(Updates prices, adds quote)
By Jessica Mortimer
LONDON, Oct 15 (Reuters) - The dollar was near a 10-month low against its currency basket on Friday with investors, already bearish towards the greenback, awaiting a speech from U.S. Federal Reserve head Ben Bernanke for more clues on monetary easing.
Bernanke's speech at 1215 GMT is expected to give pointers on how aggressive the Federal Reserve's anticipated quantitative easing will be next month, while soft U.S. inflation data at 1230 GMT would likely add to the case for looser policy.
Retail sales for September are also due and will give an
indication how consumer demand is holding up. [ID:nN14141178]
The euro was just below its highest level in more than eight
months against the greenback, while the Australian dollar
"There is growing expectation that he (Bernanke) may provide more clarity on the Fed's proposed QE2 today ... The criteria for perceived success are important to provide a guide as to when it may end," a London-based trader said.
"The dollar is likely to continue to weaken if the market feels that the Fed will just keep going".
The U.S. Treasury Department is also expected to issue a report on the currency practices of other countries on Friday. The U.S. administration faces a tough call on whether to label China a currency manipulator, a move that could throw a wrench into Sino-U.S. relations. [ID:nN14134313]
At 1140 GMT, the dollar index was down 0.20 percent at 76.497, near a 10-month low of 76.259 hit the previous day. It has support at about 76.00, roughly where a trendline from lows in July 2008 and November 2009 now lies. If it breaks that, the next target is the November low at 74.17.
The dollar reversed a brief recovery during Asian trade when investors trimmed short positions.
The euro was flat at $1.4083
Upside targets for the euro include a late January high at $1.4195 and then $1.4374, the 76.4 percent retracement of the euro's slide from its November 2009 peak down to a trough hit in June.
"Bernanke should give some indication of the shape and size of the stimulus. If either that or the inflation numbers disappoint then the dollar will definitely go lower," said Ankita Dudani, currency strategist at RBS. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ "Currencies: Race to the Bottom" PDF:
http://r.reuters.com/gez77p
SUSTAINED REBOUND UNLIKELY
Analysts said a sustained dollar rebound seems unlikely at this point, especially given the prospects of further balance sheet expansion by the Federal Reserve.
"I think the dollar will be on the defensive ahead of any expected QE announcements at the Fed meeting in November," said Daragh Maher, deputy head of global foreign exchange research at CIB. "True, the dollar's fall has been swift, but the bargain hunters do not appear to have any conviction in driving it up."
In contrast to the Fed's hints at QE, the European Central Bank has stood firm on plans for an exit from extraordinarily loose monetary policy. Data on Tuesday showed more expensive fuel boosted euro zone inflation in September, though core inflation stayed subdued. [ID:nBRLFLE67B]
The Australian dollar was flat at $0.9937, having hit a 28-year peak just short of parity at $0.9994 on Thursday.
The U.S. dollar dipped 0.3 percent to 81.18 yen
Japanese Finance Minister Yoshihiko Noda said on Friday Japan would continue to take decisive steps on currencies regardless of Group of Seven or G20 meetings. [ID:nTOE69E00B]
(Additional reporting by Anirban Nag; Editing by John Stonestreet)