Forex - EUR/USD lower on QE 3 worries, weak housing data

Investing.com - The euro traded lower against the dollar Wednesday after a Federal Reserve governor blasted the U.S. central bank's decision for QE3 despite weak new homes sales weighing on the greenback.

In U.S. afternoon trading on Wednesday, EUR/USD was trading down 0.28% at 1.2864.

The pair was likely to test support at 1.2816, the low from Sept. 12, and resistance at 1.2980, Monday's high. Pressuring the greenback, new home sales in the U.S. fell unexpectedly last month, official data showed on Wednesday.

In a report, the Census Bureau said that new home sales fell to a seasonally adjusted annual rate of 373K, from 374K in the preceding month whose figure was revised up from 372K.

Analysts had expected new home sales to rise to 380K last month.

Earlier, Federal Reserve Bank of Philadelphia President Charles Plosser, a noted inflation hawk, said a decision to roll out a third round of quantitative easing to encourage investing and hiring won't work in that households and businesses would rather pay down debts than take on new leverage.

Quantitative easing functions via pumping liquidity into the financial system in a way that pushes down interest rates across the economy to encourage borrowing.

"And as far as households are concerned, they continue to try to repair their balance sheets in the wake of substantial losses of housing wealth, as I indicated earlier. They are deleveraging and saving more. It seems unlikely that a small drop in interest rates will overturn the strong desire to save and, instead, induce households to spend more," Plosser said in a speech earlier, according to prepared remarks of his presentation.

"Thus, in my view, we are unlikely to see much benefit to growth or to employment from further asset purchases. If I am right, then conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed’s credibility," Plosser added. 

"This is quite costly: If the public loses confidence in the central bank, our ability to set effective monetary policy in the future will be harmed and households and businesses will feel the consequences."

Helping lift the dollar, the Standard & Poor’s/Case Shiller House Price Index showed that home price in 20 cities rose 1.2% in July of this year compared with the same month a year ago.

Analysts had expected the closely watched gauge on home prices to rise 1.0% in July.

Elsewhere, the Conference Board, an industry group, reported that its consumer confidence index rose to 70.3 in September from an upwardly revised 61.3 in August. 

September's reading was the highest since February and outpacing analysts' calls for a 63.0 reading.

The euro did see support, however, on news that German Finance Minister Wolfgang Schauble said European policymakers should do everything in their power to protect the single currency, pointing out that defending the euro was "worth any effort."

Talk that lawyers in Germany are examining the legality of the European Central Bank's bond purchasing program offset Schauble's bullish comments for the euro.

The euro, meanwhile, was down against the pound and down against the yen, with EUR/GBP trading down 0.04% at 0.7964, and EUR/JPY trading down 0.33% at 100.03.