Euro Tense Ahead Of Fed Meeting And German Court Ruling

The Euro remained in a state of limbo near a four month high against the US Dollar on Tuesday with most investors now growing wary ahead of events in Europe and the United States, in particular, the Fed Reserve Meeting and German Court Ruling.
Most analysts believe that as long as there are expectations of quantitative easing by the Fed, the Euro is likely to have support.
Meanwhile, Germany's constitutional court is set to make a vital decision by ruling on Wednesday about whether Germany can legally participate in the Euro Zone's permanent bailout fund.
On Wednesday, the Federal Open Market Committee (FOMC) starts a two day meeting. Speculation as to the outcome of the meeting saw the Dollar decline earlier today against most of its 16 major peers.
The Dollar Index (DXY) which IntercontinentalExchange Inc. uses to track the Dollar against the currencies of six U.S. trading partners, slid 0.1% to 80.361,having hit 80.151 on Friday, its lowest level in four months.
Speculation abounds that the Federal Reserve will purchase bonds in a third round of quantitative easing, or QE, a measure that tends to debase the currency.
I think that it is probable that additional easing will be announced at the FOMC meeting. Should it be the case that QE3 is announced, the result will be that the Dollar will be sold and then likely continue to weaken. In fact, many traders will be looking to sell any type of large rallies in the Dollar.
The Fed, in two previous rounds of quantitative easing, from 2008 to 2011, has bought $2.3 trillion of securities.
In August, Fed Chairman Ben S. Bernanke had defended his policies and stressed that further action was likely to combat unemployment, which he declared to be a "grave concern".
Earlier today, the Dollar dropped by 0.1% to 78.22 Yen and 0.1% to $1.2765 per Euro.
Demand for the Euro was subdued ahead of a report due out on Wednesday, which is predicted to show that European industrial production has contracted as concerns linger that the sovereign debt crisis is constraining growth.
The Euro remained little changed at 99.85 Yen, having dropped 0.4% on Monday.
In Greece, the leaders of the coalition parties had agreed to meet again on Wednesday, ahead of the Euro area finance ministers gathering in Cyprus for a briefing on Greece's progress on Friday.
On Wednesday, Germany's Federal Constitutional Court is also due to rule on the country's participation in the European Stability Mechanism (ESM), which is a permanent 500 billion Euro ($639 billion) fund that extends loans to member states and that may purchase their bonds to lower borrowing costs. Germany, which holds a 27% share in the fund, is expected to be the largest contributor.
For the moment, the market is expecting that the German Constitutional Court will approve the ESM. Should this be the case, I predict that the Euro will be given a boost.