The euro fell through the 1.1700 level coming off its best levels of the night in early European trading today as EZ inflation printed exactly as expected at 2.5% on a year over year basis . Currency traders are fixated on the idea of a possible 25 basis point rate hike by the ECB at its upcoming meeting in December. The rising expectation of  a "preemptive" bump in rates has finally produced some mild support for the unit in Asian trade with the real action of the night centered in the EUR/JPY cross which rallied to a high of 138.85 as the divergent monetary policy expectation between Europe and Japan continued to reverberate through  the FX market. 

However, the inflationary data itself was inconclusive as to the possible action of the ECB. The core rate remained muted at 1.4% but the overall inflation rate stayed well above the ECB' s self imposed limit of 2% and most analysts expect it to remain there well into 2006. Generally the news suggests that the chances for a rate hike have increased, but until market consensus is certain of that fact euro trading will be volatile. The unit was also not helped by the surprisingly dovish a BOE report  which noted that inflation risks are now balanced. The report caused the pound to slide 100 points in less than an hour dragging all the majors down with it. Today's TICS release may tilt the tide back to euro once again if the numbers offer any hint of a slowdown in foreign capital flows into the US. Overall, trading in the EUR/USD has assumed a consoldative tone as the decline of the past three weeks  is being slowly absorbed by the FX market.

Boris Schlossberg is a Senior Currency Strategist at FXCM.