The euro tagged the 1.2900 figure during midday European session today as better than expected Euro-zone data provided the beleaguered euro bulls with a bit of fundamental support for the first time in two weeks. Although the Bloomberg Retail PMI still printed below the 50 expansionary level it registered at 48.5 - better than 47.3 recorded last month. More importantly, the PMI numbers for Germany, the region's largest economy, exploded to 52.4 far higher than then 47.5 consensus estimate. The welcome burst of activity out of Germany suggests that Gerhard Schroeder's $6 Billion euro tax cut program may be finally bearing fruit as German consumers begin to demonstrate some optimism.
Nevertheless, the news is not all positive. France which up to now has been the prime engine of growth, reported negative month to month comparisons - the only one of the big three to do so. The barrage of dour data can severely impact the chances of French ratification of the EU constitution which can inject geo-political risk into the European currency.
We wrote yesterday that "While the euro hardly has the momentum to stage a strong counter rally, it may muster a small retracement if the economic data does not generate any more negative surprises." The pair has made it retracement. The key question going forward is how much more strength does the move have? Today's uneventful economic calendar is unlikely to generate any price action, however the Wednesday oil inventory data which has become a source of fierce focus for many markets, not just FX, may hold clue to the future movement of the EUR/USD.