The EUR/USD made a strong turnaround in the European session today after Euro-Zone Industrial Production results printed much better than market expectations. The data reported a 2.8% rise on a year over year basis, as the lower currency clearly helped European manufacturers build momentum in August.  Earlier in the session the pair dropped through the 1.9000 figure coming within a whisker of probing the yearly lows. The main cause of the downdraft was a story in Financial Times which stated that Angela Merkel may have backed away from her pledge to lower German income tax rates. The news confirmed the market's worst suspicions that the grand coalition government will be unable to enact meaningful reforms to jump start the German economy.  The collapse in the EUR/USD was also exacerbated by aggressive stop hunting by the dealers forcing many 1.1900 no touch options expired worthless. The price action however made a very sharp U turn after the economic data was released, as the Industrial Production reports suggested that the Euro-Zone economy may be on a path to growth regardless of which politician is at the helm.

Meanwhile in Japan the yen remained rangebound near two year highs as fears over hurricane Wilma made for cautious Asian session trading.  The currency market is concerned about any additional damage to the oil drilling platforms in the Gulf Of Mexico after Wilma suddenly mushroomed into a category 5 storm. Although, Wilma is not expected to move into the Gulf heading to the Florida peninsula instead, its final destination will be unclear until Friday. Japan imports 99.5% of it crude demand and is therefore vulnerable to any supply disruptions.

Boris Schlossberg is a Senior Currency Strategist at FXCM.