IF THERE was ever a contest for the most resilient currency in the FX market, the euro would be the unquestionable winner at this time. Over the past several weeks, global markets have experienced a series of extreme geopolitical shocks – each one strong enough to make even the most ardent risk-taker think twice about jumping into the fray. Yet no matter what crisis exploded across the globe, euro-dollar has been able to shrug off any and all investor concerns.

At the start of this week, despite a plethora of problems from Fukushima to Tripoli to Brussels, the euro-dollar marched merrily onward, setting fresh yearly highs along the way. Why such relentless strength in the pair? The currency market remains convinced that the ECB will raise rates as promised at its next meeting in April. The conventional view is that with Japan no longer posing a radiation threat and with the no-fly zone in Libya seemingly established, the geo-political risks will begin to recede. As Japan starts to rebuild, and oil prices ease back below $100 per barrel after Gaddafi relinquishes his power, global growth will resume making euro-dollar an attractive trade on a rate differential basis.

However, euro bulls have a lot of “ifs” attached to that scenario and may be ignoring the nascent signs of a global economic slowdown at their own peril. The rebound in Eurozone economic activity has been spearheaded by Germany, which remains highly dependent on its export sector to generate growth. With Japan essentially off line, vast swaths of the Middle East embroiled in conflict and Chinese authorities actively trying to curb credit in their banking system, the German industrial sector may find it much more difficult to generate additional demand for its products as the year progresses. This Thursday and Friday, the market will get the latest information regarding the health of the German economy from the flash PMI reports and IFO survey readings. If the data shocks to the downside, the ECB will have to rethink its hawkish approach to monetary policy and the resulting unwind in euro-dollar could take it back below $1.40.