The Euro held up very well despite the stronger US ISM and non-farm payrolls figures.
This strength was partially due to robust German retail sales in the month of April which tripled expectations.
The market is looking at this number as a validation of a need for further rate hikes next week.
ECB President Trichet said this morning that second round inflation effects must be avoided.
This language suggests that a hawkish stance after June is not out of the question.
What happens after June is will be everyone?s focus next Wednesday.
The central bank has provided little clues on where they stand and data has been mixed.
For example even though we had solid spending numbers from Germany this morning and a lower unemployment rate for the region as a whole, manufacturing PMI was softer that expected. Data earlier in the week could help to clear the air a bit with Germany factor orders, Eurozone service sector PMI and producer prices due for release. Meanwhile Swiss data fell short of expectations today with Swiss PMI slipping from 61.9 to 58.9. It seems that even though the franc has remained weak, Swiss businesses are actually less optimistic about business activity. The current account surplus edged higher while consumer prices were right in line with expectations. Unemployment is the only release on the calendar next week.