Euro At 7 Month Highs Ahead of ECB

Bloomberg Retail PMI data surprised to the downside printing considerably below the 50 boom/bust level at 47.2 against 49.6 the month prior. However, the sub components of the report were not nearly as gloomy with employment rising to 49.0 from 48.6 and value of goods ordered improving materially to 53.6 from 49.4.

Overall, the Retail PMI data is not closely followed by most currency traders and the market chose to shrug off the news in favor of more positive data from the PMI Services and Manufacturing surveys earlier in the week.

Although only the most aggressive and optimistic traders expect an interest rate hike from ECB this month, the market is looking for strong confirmation that the Central bank will signal a rate hike for its May meeting. The recent strength of EUR/USD has been based on dual drivers of central bank reserve diversification and increasing expectations of narrowing in interest rate differentials.

In fact vis a vis its neighbors the franc and the pound, the euro has posted multi month highs rising above the .7000 figure against sterling and the 1.5800 level against the Swissie. Market sentiment has built to such a fever pitch that any hesitation or indecision on the part of ECB President Jean Paul Trichet today may trigger a profit taking sell off in the pair especially if tomorrow's US Non Farm payrolls print well above 200K offering support for further rate hikes from the Fed and rejuvenating dollar bulls in the process.