Positive News for the Euro Continues

The better than expected rise in consumer spending caps off a week of strong Euro zone data and serves as unequivocal proof that economic rebound in the region is gaining momentum. The data should allay any fears by ECB doves that today's much anticipated rate hike would stifle the recovery in the 12 member region and may in fact pave way for further rate increases by the European Central Bank especially in light of the fact that EZ PPI soared 5.3% on year over year basis as energy prices inflated input costs.

Given ECB generally hawkish posture, today's news flow should be beneficial for euro bulls, but trading will most likely turn on Mr. Trichet post announcement commentary. Market players will be listening intently for any hints to ECB's future actions.

Yesterday's US ISM Manufacturing results stemmed dollar's losses as the report showed that US industrial activity remains brisk, but tomorrow's far more important ISM Non-Manufacturing survey (a measure of service sector activity) may be far more important in offering a true measure of US growth.

Some analyst have forecast 5% GDP growth for Q1 which appears to be grossly overoptimistic to us especially with oil stubbornly above the $60/bbl handle. Yet if these predictions are correct the dollar rally may be far from over.

For the time being the 1.2000 level represents significant overhead for the EUR/USD but if the US economic news continues to disappoint it may well give way in the near future. For the time being both camps appear to be in a standoff.