The EUR/USD held the 1.2150 level in early European trade as market participants squared positions ahead of possibly volatile US session awaiting major economic and political news. On the economic front US GDP numbers will be the marquee event on the calendar with Q3 growth projected to rise to 3.60% from 3.30% the period prior. Many analysts are uncertain as to the extent of the damage from Hurricanes Katrina and  Rita. At present time the whisper estimates have been ratcheted  down to 3.3% indicating that if the report simply meets the consensus numbers it may well be taken as a positive surprise by the market.

Politically, today the market will finally hear what if any actual indictments will be handed down by the grand jury convened by Special Prosecutor Patrick Fitzgerald. Early press reports suggest that the only senior administration official to be indicted will be Vice President's chief of staff Scooter Libby. As serious as these charges are, if these reports are indeed true, if Mr. Rove and Mr. Cheney do in fact  escape prosecution the news should actually boost the greenback which has recently suffered from a crisis of confidence in the present US Administration. The FX market may indeed conclude that despite the Meiers fiasco and the Plame-affair aftershocks, the Administration worst political mistakes are behind it and could rally the dollar on "sell the rumor, buy the news" dynamic. If however, Mr. Fitzgerald attempts to widen his inquiry and pursue further charges, all bets are off and greenback bulls will be fighting a major assault on the currency as global speculators will likely panic about further instability of the US government.

Turning briefly to economic data, we note that EU Money supply increased at a greater than expected rate of 8.2% while Euro-zone Confidence surveys for both industry and consumers improved markedly exceeding consensus projections. Overall, the economic picture in Europe continues to be supportive of at least a 25bp rate hike from the ECB in the near future. Though ECB officials, most recently Mr. Weber have tried to dampen market speculation on that issue, if  EZ economic activity continues to follow its recent trend of expansion, monetary policy makers will have no choice but to tighten soon as all inflation gauges race above their self imposed target of 2%.

Boris Schlossberg is a Senior Currency Strategist at FXCM.