It was the best of times, it was the worst of times to be a euro bull this week. It simply depended on which time of the day you traded. As I noted in Friday’s commentary,”As we approach the holidays the currency market has taken on all the characteristics of Florida weather – just wait a minute and it changes.” After rising by a staggering 10% in 2 days the EUR/USD fell just as quickly stopping out both longs and shorts in its wake.

The spike in volatility this week have been nothing short of breathtaking with the hunger for yield creating one of the most ferocious speculative moves ever recorded in the history of the currency market. Yet when the dust settled the winner was far from clear. Although the euro was up on the week, its strength was driven strictly by ECB’s reluctance to join everyone else in a race to ZIRP.

On the economic front the situation in the EZ was anything but positive as IFO survey hit an all time low suggesting that manufactures in the region are in world of pain. With one out of seven jobs in Germany dependent on the car industry it is impossible to imagine that German unemployment will not rise materially in 2009 which will inevitably force the ECB to relent and ease. The car industry is in such a mess that even storied Toyota will report its first loss ever in the company’s 70 year history.

The hard truth therefore, is that there is no place to run. The dollar is yielding zero and the EZ is a cauldron of nationalistic tensions ready to ignite at the first hint of rising unemployment. Perhaps this week’s insane volatility was just a function of holiday illiquidity, but somehow we don’t think so. The wild moves suggest extreme uncertainty and concern about the future and we believe there will be more turbulence in 2009.

For the time being however, the holidays are almost upon us and hopefully the markets will calm down to give everyone much needed rest. We will not be publishing next week as the FX market tends to slow down materially during the Christmas to New Years week. Perhaps the best thing that can be said about 2008 is that we survived it.

I wish you and your families the very best of health, love and wealth in 2009 as together we try to navigate the always challenging currents markets next year.

Boris Schlossberg serves as director of currency research at GFT, and runs bktraderfx.com.