To sum up this week in the FX market, the spotlight must surely focus on the dramatic rally in EURUSD that swept us off the 1.2875 lows on Monday, and has now - less than 5 days later - delivered us fresh 2011 highs above 1.3450. It could be simply a short squeeze of immense proportions; but it's also worth questioning whether it is also symptomatic of a deeper change in sentiment for the long downtrodden EUR.

The success of the Portuguese debt auction at the start of the week is sure to have disappointed some weary bears, and the continued demand for European bonds from the Far East has no doubt exhausted others. Maybe we are finally at that turning point where the market is starting to believe the authorities truly have got both the determination and the means to keep its embattled Eurozone ship afloat after all. No doubt helping fuel EURUSD's engine yesterday was the ECB press conference, where the take home message has been interpreted as being rather hawkish.

President Trichet's suggested that the governing council was growing increasingly concerned about inflationary pressures inside the Euro area, a view supported by recent data. December's final CPI estimate came in this morning at 2.2% YoY - clearly above ECB's medium-term target of below, but close to, 2%. Trichet also reminded the audience that the ECB were never pre-committed not to move interest rates, adding further to the speculation the ECB might hike if the inflation outlook warranted it - and irrespective of patchy growth.

In the US, yesterday's initial jobless claims jumped unexpectedly to 445k, but we feel that it is misguided to place too much emphasis on this when judging the broader EURUSD move. In fact, it is soon likely to be forgotten as today we have a packed schedule including; the December readings of CPI, retail sales, and industrial production, along with the latest U.Mich consumer confidence and business inventories data.

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Today's Key Issues (time in GMT):
10:00 EUR Final HICP, % m/m (y/y) Dec; exp: 0.6 (2.2) prev: 0.1 (2.2)
13:30 USD CPI, % m/m (y/y) Dec; exp: 0.4 (1.3) prev: 0.1 (1.1)
13:30 USD Retail sales, % m/m Dec; exp: 0.8 prev: 0.8
14:15 USD Industrial production, % m/m Dec; exp: 0.5 prev: 0.4
14:15 USD Capacity utilization, % Dec; exp: 75.6 prev: 75.2
14:55 USD U/M consumer sentiment index Jan-p; exp: 75.5 prev: 74.5