Forex - EUR/USD rallies higher on German court decision

Investing.com - The euro rallied  Wednesday, after Germany’s constitutional court approved the ratification of the euro zone’s new bailout fund, while speculation over additional easing by the Federal Reserve continued to curb dollar demand.

EUR/USD hit 1.2936 during U.S. trade, the pair’s highest since May 11; the pair subsequently consolidated at 1.2891, gaining 0.28%.

The pair was likely to find support at 1.2816, the session low and resistance at 1.3006, the high of May 9.

The ruling by Germany’s constitutional court permits the country’s president to ratify the European Stability Mechanism under certain conditions and clear the way for the European Central Bank’s bond purchasing program to proceed.

The court said Germany’s liability to the EMS must not exceed EUR190 billion without the approval of the lower house of parliament and said that both houses of parliament must be kept informed about decisions relating to the ESM.

Following the ruling, Eurogroup head Jean-Claude Juncker said the ESM's board of governors will hold their first meeting on October 8.

Italy saw borrowing drop sharply at an auction of three- and 12-month government bonds following the decision, reflecting growing optimism policymakers in the euro zone will do more to stem the region’s ongoing debt crisis.

The greenback remained under broad selling pressure amid speculation that the U.S. central bank may implement a third round of quantitative easing after its upcoming policy meeting, which concludes on Thursday.

Adding to pressure on the greenback, ratings agency Moody’s said on Tuesday that it could downgrade the U.S’s triple-A rating if budget negotiations for 2013 do not result in policy measures which will reduce the country’s debt.

The euro was higher against the pound and the yen, with EUR/GBP easing higher by 0.03% to 0.8002 and EUR/JPY up 0.41% to 100.37.

Also Wednesday, official data showed that U.S. import prices rose for the first time in five months in August, climbing 0.7% as fuel prices increased, but were still below expectations for a 1.4% increase.