German Producer Prices in March declined by -0.7% versus -0.3% projected, contracting for the sixth straight month n a row. Analysts are beginning to worry about the prospect of deflation spreading throughout the Eurozone as highlighted by yesterday’s article in New York Times - and today’s German PPI data does little to alleviate those concerns.

FOMC's stunning announcement yesterday that it will buy up to $300 Billion in Treasury bonds took the currency market by surprise and rallied the EUR/USD by more than 500 points in less than 24 hours. As we wrote earlier the FOMC announcement ,” represents an 'all-in' bet on massive monetary stimulus in order to stem the worst contraction in the US economy since World War II. The move is of course wildly dilutive to the currency with nearly $1 Trillion created out of thin air. Little wonder then why the dollar collapsed across the board even as other asset classes rallied. It also indicates that the Fed may have come to the conclusion that the two biggest customers for US debt – China and Japan – may be unable or unwilling to provide additional capital to finance the gargantuan expansion of US fiscal spending this year and next.”

It has been a rough day in the financial markets with the Dow Jones Industrial Average and S&P 500 falling to the lowest level in 12 years.

Traditionally, EUR/GBP is known as the range trading currency. Compared to the other commonly traded currency pairs, it used to have one of the narrowest average daily and monthly ranges. For example, between 2005 and 2007, EUR/GBP traded within a 400 pip range.

To have your credit rating downgraded means higher costs of borrowing. The Euro is slipping as we are seeing an exodus out of Spanish bonds because some global funds are mandated to invest only in AAA debt.

The EZ Trade Balance for November registered its ninth negative reading in 2008 as higher exchange rates and significant slowdown in global demand continued to pose difficulties for the export driven region.

Tomorrow’s ECB rate announcement due 12:00GMT is shaping up to be one of the key events in the central bank’s ten year history. With Euro-zone economy facing one of the worst economic slowdowns in decades Mr. Trichet and the governing council are under enormous pressure to abandon his ”Bundesbanke-like” rhetoric and begin to ease aggressively.

The EURUSD erased almost all of its Asia session gains after a news report that Ireland may call in the IMF if the country’s economy worsens hit the wires at the start of European trade. The currency market which was steadily bidding up the EUR/USD pair in a bout of short covering ahead of Thursday’s ECB interest rate announcement was caught completely wrong footed and the unit plunged 100 points in 20 minutes on fears that such a move would create unprecedented political stress in the region.

The euro started off the new week the same way it ended the last one – by sliding against the dollar as focus in the currency shifted towards the ECB. The central banker in Frankfurt are facing escalating pressure to lower rates in light of the severe slowdown in economic activity in the Eurozone. In contrast , Friday’s US Non Farm payrolls, though horrid at -525K, were far better than the whisper number of -700K and as a result support for the greenback stiffened as the data refused to confirm the dollar bears worst expectations.