Not only does he need to suggest to the market that rates will be increased in May, but he also needs to indicate that rates will be increased beyond that as well. The hesitancy of the market reflects the possibility that the central bank President could also take a more dovish stance. Why? Because the EUR/USD is trading less than 1 percent away from its all-time high. As an export dependent region, the Eurozone is particularly sensitive to the value of the Euro. In the past, we have said that the path to a stronger Euro is through a weaker one and now, the path to a weaker one is through a strong Euro. The Euro topped out in December 2004 / January 2005 after a series of disappointing economic data. Although the economy is at a much better place now than 2 years ago, it will not be completely vulnerable to the recent run-up in the currency. One of the central bank’s biggest concerns is inflation. A strong Euro automatically tightens the economy and reduces inflationary pressures, alleviating some of the need for the central bank to be exceptionally hawkish. However should ECB President Trichet pacify the markets by reintroducing the words “strong vigilance” back into his vocabulary, not only will the EUR/USD rally, but expect another record high in EUR/JPY.