While this was widely expected, the German constitutional court paved the way for further bailouts. This ignited a fast rally in EUR/USD that faded quickly. The court didn’t put the brakes on bailouts, but the limited success of these bailouts (to say the least) put the brakes on the rally. Enabling the current format of bailouts doesn’t really solve the problem.
The pair jumped above 1.41 and reached 1.4150 before retreating. The court noted that the ruling was quite tight, and this serves as a warning sign for the next moves.
The European debt crisis is far from over and Greece is still quite close to default. While the court ruled in favor of bailouts, the German government is losing patience with Greece. The German finance minister said that if Greece didn’t fulfill its obligations, it wouldn’t get more money.
Schaeuble expects Greece to take further steps, but the political capacity of the Greek government is running low. Also in Italy, the government finds it hard to push through with austerity.
And this austerity has limited success in any case. Also in donor countries, opposition is mounting against these bailouts. The loss of Merkel’s party in her own home state was a clear disapproval of the German government’s policies.
So while the German constitutional court didn’t stop the bailouts, they are likely to stop by themselves. They don’t really seem to work.
Under 1.41, further support is found at 1.4030, followed by 1.3950. For more on the pair, see the EUR/USD forecast.Get the 5 most predictable currency pairs