Forexpros – The euro remained higher against the U.S. dollar on Wednesday, as speculation that the Federal Reserve may implement further easing measures weighed on the greenback, while concerns over the euro zone’s sovereign debt crisis remained.
EUR/USD hit 1.2296 during U.S. morning trade, the daily high; the pair subsequently consolidated at 1.2281, adding 0.25%.
The pair was likely to find support at 1.2234, Tuesday’s low and a two-year low and resistance at 1.2400, the high of July 6.
The euro’s gains were limited as Germany’s Constitutional Court delayed on Tuesday its decision on whether the euro zone’s bailout fund, the European Stability Mechanism, is compatible with German law.
The court said a decision could take months rather than weeks due to the complexity of the ruling. Without German backing, the ESM, which was originally meant to start on July 1, then delayed to July 9, cannot come into effect.
Meanwhile, Spanish Prime Minister Mariano Rajoy announced EUR65 billion of new austerity measures, in an effort to meet new budget-deficit targets agreed with euro zone partners.
However, market analysts warned that the fresh austerity measures were likely to drag Spain’s economy deeper in to a recession.
The fresh budget cuts come a day after the conclusion of the latest meeting of euro zone finance ministers.
While the ministers agreed to grant Spain an extra year through 2014 to reach its deficit reduction targets, they did not come up with a final figure for aid for the country’s ailing banks but said some EUR30 billion would be available by the end of this month.
Earlier in the day, Germany saw borrowing costs fall to a record low at an auction of 10-year government bonds, as sustained concerns over the region’s debt crisis continued to boost demand for safe haven bunds.
Elsewhere, the euro was trading close to a three-and-a-half year low against the pound with EUR/GBP falling 0.12%, to hit 0.7885.
Also Wednesday, official data showed that the U.S. trade deficit narrowed to USD48.7 billion in May from deficit of USD50.6 billion in April, whose figure was revised from a deficit of USD50.1 billion. Analysts had expected the U.S. trade deficit to narrow to USD48.5 billion.
Later in the day, the U.S. was to release official data on crude oil stockpiles, followed by the minutes of the Fed’s June policy-setting meeting.
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