Forex - EUR/USD rallies on U.S. government shutdown fears, German data

Investing.com - The euro strengthened against the dollar on Wednesday amid swelling fears that threats of a government shutdown in the U.S. Congress amid fiscal debates will roil U.S. markets even if a spending compromise passes at the last minute.

Lackluster U.S. data softened the dollar by leaving investors with no weather vane indicating when the Federal Reserve may begin tapering its USD85 billion monthly bond-buying program, while solid data out of Germany bolstered the single currency as well.

In U.S. trading on Wednesday, EUR/USD was up 0.41% at 1.3528, up from a session low of 1.3462 and off from a high of 1.3538.

The pair was likely to find support at 1.3325, the low from Sept. 17, and resistance at 1.3554, Monday's high.

In the U.S. recently, the House of Representatives approved legislation to fund government through Dec. 15, however, lawmakers also passed a bill that would defund President Barack Obama's healthcare bill, the Affordable Care Act.

While the bill faces little chance of survival, concerns that Democrats and Republicans will go back and forth crafting and rejecting spending proposals as the U.S. runs close to hitting its debt ceiling repelled investors away from the greenback.

Failure to agree on a solution could result in a government shutdown in October.

Spotty data in the U.S. weakened the greenback by keeping investors unable to guess when the Federal Reserve will begin to taper the size or pace of its asset-purchasing program, which seeks to spur recovery by driving down interest rates, weakening the dollar in the process.

In a report, the Census Bureau said that U.S. new home sales rose 7.9% to a seasonally adjusted 421,000 units in August from a downwardly revised 390,000 in July. Analysts were expecting new home sales to rise to 420,000 units last month.

A separate report showed that U.S. core durable goods orders, excluding transportation items, fell 0.1% in August, disappointing expectations for a 1% increase, after an upwardly revised 0.5% contraction the previous month.

Overall durable goods orders in the U.S. rose 0.1% last month, short of expectations for a 0.2% increase following a downwardly revised 8.1% decline in July.

Meanwhile in Europe, solid German consumer confidence bolstered demand for the euro.

The forward looking GfK index of German consumer confidence rose to 7.1 for October, while September’s reading was revised up from 6.9 to 7.0.

Analysts were expecting the October figure to come in at 7.0

Elsewhere, the euro was flat against the pound and up against the yen, with EUR/GBP trading down 0.01% at 0.8417 and EUR/JPY trading up 0.27% at 133.41.

On Thursday, the U.S. is to release the weekly report on initial jobless claims, as well as final data on second quarter growth and private sector data on pending home sales.