Despite rather tepid economic data from the Euro-zone, the EUR/USD bolted through the 1.2000 barrier in Asian trading today and held most of its gains throughout the European session. Tonight's economic results were less than stellar with EZ Retail PMI printing at 49.7 as it once again fell below the 50 boom/bust barrier after registering a reading of 54.4 last month. The severe decline was led by Germany which posted a 7 point drop from 52.7 to 42.5. The sharp fall off in German spending is worrisome but can perhaps be explained as a one off event due to elections and skyrocketing oil prices in September. If the data, however, does not rebound by next month it will put into doubt all speculation of near term rate hike by the ECB.

Today, the ECB is expected to announce that it will keep rates at 2%, although recently several ECB officials have been sending out hawkish pronouncements in what many analysts believe is an attempt by the Central Bank to prepare the market for the inevitable rate hikes. The ECB, however, must be certain that the fragile Euro-zone economy can withstand the rise in rates and today's woeful retail results provided no such assurance.   

So why did the pair rally so strongly? Some market participants speculated that the news of Venezuela closing its US bank accounts and moving its reserves to Europe, may have sparked the euro rally. But that announcement was already several days old, and Venezuela's relatively small reserves were unlikely to have much impact on the market. Instead as we wrote on Monday "despite the dollars impressive rally we believe that most of the down move in the EUR/USD is behind us". Yesterday's poor showing from the ISM  Non-Manufacturing report was just the catalyst necessary to relieve the oversold condition in the euro. However, unless US NFP data tomorrow prints far worse than expected it is unclear how much more momentum is left in this bounce.  

Boris Schlossberg is a Senior Currency Strategist at FXCM.