The euro continued its steady climb against the greenback in uneventful European session, made even less volatile by the absence of Asian participants due to a holiday in Japan. With Japanese markets closed for Culture Day, order flows have been muted as traders squared positions ahead of US Non-Farm payrolls on this Friday.  Despite political turmoil in Germany and religious unrest in the streets of Paris, the euro has been strongly bid on expectations that today's ECB announcement will carry a hawkish message. Virtually no market participants expect a rate hike from the ECB today, however, a reaffirmation by Mr. Trichet that inflation remains a serious problem would confirm speculation that a rate hike in December is imminent.  With the greenback now trading at 200 basis point premium to the euro, its imperative for the ECB to begin to narrow or at least slow down the interest rate differential between the two currencies if the euro is to hold it own against the dollar. 

On the economic front the PMI services data out of the Euro-zone was mixed with French and Italian surveys posting better than expected results while German data missed slightly to the downside. Overall the EU numbers remained steady inching from 54.7 to 54.9. The PMI Services results suggest that Euro-zone recovery remains on track though expansion may have been slowed by higher oil prices in October.

Later in the day the focus will turn to US where ISM Non-Manufacturing report is expected to print at 57 -- higher than last month's number of 53.3. Although euro's recent rise off the 1.2000 level has been impressive, it remains to be seen if the unit can hold these prices if US data produces as positive a result as the market expects. If the EUR/USD does manage to barrel forward despite strong data from ISM and NFP on Friday,  then the pair may have set a major bottom and greenback longs will be forced to reassess their position.

Boris Schlossberg is a Senior Currency Strategist at FXCM.