Forex - EUR/USD sharply higher on Fed words, German bailout increase

Forexpros - The euro hit a three week high against the U.S. dollar Monday, as Federal Reserve Chief Ben Bernanke stated that monetary easing is still required to reduce U.S. unemployment and Germany said it may back the plan to increase euro zone bail out funds prior to the finance minister’s meeting on March 30th.

EUR/USD hit 1.3339 during U.S. morning trade, the pair’s highest since March 1; the pair subsequently consolidated at 1.3327, gaining 0.42%.

The pair was likely to find support at 1.3191, the session low and short-term resistance at 1.3355, the high of March 1.

The greenback fell sharply against the euro after Fed Chairman Ben Bernanke stated that further monetary accommodation is needed to bring about big gains in the U.S. jobs market, which he described as “far from normal,” despite a recent improvement.

The euro extended gains after an industry report showed that pending home sales in the U.S. declined unexpectedly in February, indicated that the recovery in the housing market remains uneven.

The National Association of Realtors said its pending home sales index fell by 0.5% last month, confounding expectations for a 1.0% gain. Pending home sales rose by 2.0% in January.

Meanwhile, German Chancellor Angela Merkel said earlier that Germany would be prepared to allow running the region’s two bailout funds in parallel, increasing the size of the bailout facility. This action would provide a total fund of EUR700 billion to combat the debt crisis in the single currency bloc.

The euro also found support after a report showed that German business confidence improved in March.

The Ifo Institute said earlier that its index of German business confidence inched up to 109.8, from a reading of 109.6 in February. Analysts had expected the index to ease up to 109.7 this month.

However, investors remained cautious after Italian Prime Minister Mario Monti warned that the threat of contagion from Spain could cause the debt crisis in the euro zone to flare up again.

The euro was inched higher against the pound, with EUR/GBP easing up 0.02% to hit 0.8364 and traded sharply higher against the yen, with EUR/JPY jumping 1.01% to hit 110.40 during U.S. early afternoon trade.