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Written by Kathy Lien, Chief Strategist

The Euro staged a strong rally against the US dollar today and we are sure that the prospect of a rate hike and higher yield played a major role in the currency’s strength.  EUR/JPY hit the highest level since the introduction of the Euro and in order to achieve such strength, we needed to see some EUR/USD buying as well.  Economic data released overnight did not add to the move or take away from it.  The German trade surplus narrowed more than expected in the month of February, while growth in French industrial production beat expectations.  With nothing of consequence on the Eurozone economic calendar tomorrow, we expect traders to turn their focus to this week’s biggest event risk, which is Thursday’s ECB rate decision.  The central bank is not expected to change rates, but as we mentioned yesterday, what the market is really looking for is his language at the accompanying press conference.  Prior to the March rate hike, he introduced the words “strong vigilance” back into his vocabulary and the market took the EUR/USD from 1.3025 to 1.33 as a result.  If the word reappears Thursday, we could see the EUR/USD test its all time high of 1.3667.  If it doesn’t, then the market will question whether a rate hike will be delayed until June or if the central bank is planning to make a May hike its last.  Either way, this is not positive for the Euro and could be what puts an end to the currency pair’s recent rally.  Meanwhile, yesterday we talked about how prior extension moves in EUR/CHF have ended after the ninth trading day.  We have seen this statistical significance holds once again as the currency pair ended its nine day long rally on the back of strong unemployment figures today.  The unemployment rate fell to 3.0 percent in the month of March from 3.2 percent in February.