The euro hovered below a near-four-month peak against the dollar on Tuesday as traders grew wary after the currency's sharp gains late last week and ahead of key events in Europe and the United States. The euro traded at $1.2761, little changed from late US levels and off a high around $1.2815 hit on Friday just after poor US jobs data raised expectations that the Fed will likely launch another asset purchase programme on September 13.
"As long as there are expectations of quantitative easing by the Fed, the euro is likely to have some support," said a senior trader at a European brokerage. Having rallied over six percent from its two-year low near $1.20 hit in late July, the euro now faces major resistance from its 200-day moving average, which stood at $1.2834 on Tuesday, above which it has not been traded for nearly a year.
"I tend to think that the euro is unlikely to rise sustainably above the 200-day average. There are few reasons to buy the euro above that level," said Makoto Noji, senior strategist at SMBC Nikko Securities. While the European Central Bank's announcement of a new bond buying plan last Thursday - seen as aimed at helping cash-strapped Spain - boosted risk appetite, many hurdles remain for the euro, some market players said.
Germany's constitutional court had been set to rule on Wednesday whether Germany can legally participate in the euro zone's permanent bailout fund, a vital decision as the ECB can buy government bonds only in conjunction with the bailout fund. Few market players expect the court to rule the fund unconstitutional, but some think the judges could attach tough conditions on any future aid Germany may grant to other euro zone countries.
Before that, though, following a fresh complaint from a ruling party lawmaker against the ECB's bond buying, the court is expected to decide on Tuesday whether to go ahead with its ruling on Wednesday or delay to consider the complaint. The dollar stood near a four-month low against a basket of currencies, with the dollar index at 80.325, near Friday's low of 80.151. Against the yen, the dollar traded at 78.22 yen, down slightly on the day and near a five-week low of 78.02 yen hit on Friday.