After collapsing nearly 200 points off its highs on Friday, EUR/USD staged a tepid bounce in early European trade on Monday, helped somewhat by reassuring Retail PMI data.  The EZ Retail PMI remained above the important 50 boom/bust level, printing at 50.4 - mildly higher than the 50.2 reported last month.  With the exception of France all other major EZ players saw an improvement in demand with Germany's results jumping full 2 points higher. France, however, remains the focus of market's interest and not necessarily due to its sub-par economic performance. For the tenth night in a row, riots have rocked the country spreading now from Paris to regions south and north. While no lives has been lost, ten policemen have been injured in the hostilities as Jacques Chirac's government appears powerless to stop the anarchy. As we noted in our weekly piece, "Nothing makes currency investors more nervous than wanton destruction of property and the collapse of law and order and until calm is restored in Euro-zone's number two economy, the euro remains a very high risk proposition."  Thus for now at least, the political troubles of the French will make every rally in the EUR/USD a selling opportunity. 

Things are not much brighter over the English Channel, as  UK Industrial and Manufacturing Productions both reported relatively poor results tonight with IP printing 0.5% against 0.7% expected and MP showing -0.3% decline versus 0.3% gain projected. This is the second month in a row of contracting data. UK's  economy is headed for it slowest growth in 13 years. Although the BOE is expected to keep rates at 4.5% at this Thursday's meeting, any additional economic news of this nature will put unbearable pressure on the bank to lower rates soon which in turn would produce further selling in the pound.

Boris Schlossberg is a Senior Currency Strategist at FXCM.