The headline event of the past 24 hours has undoubtedly been the ECB rate meeting. As expected, the governing council left rates unchanged at 1.00%, but the real fireworks came 45 minutes later in the subsequent press conference. Governor Trichet began by highlighting that risks to the inflation outlook had moved to the upside and that incoming data showed positive underlying growth momentum - accordingly, official forecasts for EU inflation and growth were revised upward, but all of this had been largely predicted by the market in advance. The real surprise was Trichet's statement that strong vigilance was warranted going forwards - a phrase that strikes a very significant chord with observers familiar with the traffic light system that the ECB used during the last tightening cycle.   In that cycle, which began in December 2005, the ECB extensively utilised unofficial code words that braced the market for imminent hikes. If the statement merely alluded to monitoring closely then it was understood that no changes in rates were mooted at that stage (red light). If Trichet and his colleagues admitted to monitoring very closely then it was assumed a tightening bias had crept in, but that any move was not imminent (amber light). Once the phrase strong vigilance or occasionally heightened alertness was used, it was an immediate green light to expect a rate hike in the next meeting (or at most, the one after). The last time we heard that phrase was in June 2007's ECB press conference, and in the very next meeting (in spite of other warning signs about the cracks in the financial system) the central bank hiked rates 25bp to 4.25%. Clearly then, Trichet's choice of vocabulary has a profound meaning attached to it - and if there was any doubt of his intention, a journalist's request for confirmation elicited the response that vigilance means rates may rise next month. The obvious reaction to this news has been a strong rally in EURUSD towards 1.4000 and fixed income markets pricing in a full hike next month; but even more interesting has been the reaction of CDS and sovereign bond yields amongst the EU's peripheral nations. Greek 2 year yields rose above 15% for the first time since May 2010 in a clear sign of worry that the Eurozone's laggards may falter if a rate hike genuinely does materialize as soon as 7 April. We have no doubt that the hike is coming at the next meeting, especially as oil remains above $100 per barrel which means that CPI is unlikely to magically fall back towards the ECB's 2.0% target in the near-term. Anyone who thinks that the ECB will sit back and wait for growth to firm before hiking could be in for a shock awakening as the ECB has already proved in the past just how ruthless it can be in the quest to maintain price stability.   Nevertheless, yesterday's news should not overshadow the importance of today's key data event, namely the latest US non-farm payrolls and unemployment rate reading. In our minds, it will be the unemployment rate rather than the payrolls number that should garner the most attention on this occasion. Last time around, unemployment was expected to tick up from 9.5% to 9.6% - but much to the surprise of the market, it actually plunged impressively to 9.0%. Whether this dramatic improvement was a freak one-off distortion or the start of a trend remains to be seen; all we can say at this stage is that consensus is looking the reading to revert to 9.1% this month. The depressed state of the US labour market has been a clear stumbling block preventing the Fed from abandoning their ultra dovish stance on monetary policy, so if this number manages to stay low (and perhaps even drop further), then expect a radical shake-up in the market's expectations for Fed QE exit timing. 
Forex-Chart